A C&EN Feature
E. I. du Pont de Nemours & G o . . . . . . . "A well-tuned machine" musters its considerable resources to get back on the high road to greater profitability Money. Size. A distinguished lineage. A carefully nurtured reputation for conservative finances and technological creativity. An impressive history of growth. A widely diverse line of some 1500 products. A management cadre generally conceded to be ranksdeep in talent. A tradition of topflight research dating back almost to the turn of the century. An unsurpassed track record for developing
new products. Clearly, whatever it takes for business success, Du Pont would seem to have it. But look again. Du Pont last spring announced that it is scuttling Corfam poromeric material. Launched seven years ago with considerable fanfare and kept afloat by an outlay running upwards to $100 million, Du Pont's porous polymeric (poromeric) substitute for leather (the company adamantly shied away from ever calling it a "synthetic" or "plastic" leather) was widely heralded as the most important new product introduced by the company—or any chemical company—in the past decade. But Corfam never earned a nickel; losses from the venture, in fact, penalized earnings by $5 million or more a year. Not even a firm as robust as Du Pont can keep that up indefinitely. So company officialdom bit the bullet and decided Corfam had to go. Yet, is this apparent backpeddling any way for that wonderful company that brought you cellophane, Duco lacquers (which made mass automobile production feasible), nylon, Orion acrylic fiber, Dacron polyester fiber, neoprene, Freon fluorocarbons, Teflon fluorocarbon resins, Lucite dripless paints, and Zerex antifreeze to act? Especially after abandoning last fall plans to build a 100,000 barrel-a-day petrochemical plant on which it might have spent as much as an estimated $100 to $150 million? "As we got Du Pont chairman and president McCoy: His goal an 8%-a-year average growth rate for earnings
closer to it, it didn't stack up against better opportunities we could see elsewhere," says Du Pont chairman (since last April) and president (since 1967) Charles Brelsford McCoy. Or quietly dropping an office copier project the year before? Or a widely awaited line of color slide and movie film a few years earlier? "The technology we developed just didn't give us any marketing advantage over Kodak," explains photo products general manager P. J. Wingate. Growth record. Then what about that noted growth record? Since 1962, sales have expanded by a comfortable 50% to hit $3.62 billion last year, despite a 16% erosion in the Du Pont index of selling prices. The company has plowed nearly $3.2 billion into spanking new plants and equipment during the same period and sunk about $2 billion on research and development. Its operating investment is up by nearly 75% (to $6.6 billion), and its employment has risen by 22% (to about 110,000 worldwide). Yet for all its building and investing and selling, the increase in profits in the past eight years has been practically nil. Return on investment (net income as a percentage of all assets before depreciation and obsolescence) has fallen from a robust 8.8% to about 5.0%; in the mid-1950's return had been as high as 13.5%. Meanwhile profit margins slipped from 13.3 cents per dollar of sales to just over 9 cents. Not only has Du Pont found that it must run ever harder just to hold its own in profits, but it seems to be losing some ground within the overall chemical industry as well. Since 1960 its sales growth has been at an annual rate of 5.4% a year; the entire chemical industry, as measured by Federal Trade Commission and Securities and Exchange Commission financial data, has increased sales at an 8%-a-year clip. In 1960, Du Pont accounted for almost 25% of the sales of the 10 largest U.S. chemical companies; last year its share of the big 10's volume was down to about 20%. Du Pont's public image likewise has suffered. Ten years ago, its stock was generally esteemed as one of the bluest of blue chip investments. Here
DuPont profitability has declined since mid-1960's Per cent
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15
10
1960
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1965
Note: Excludes income from General Motors' investment prior to 1965.
was a company with assured future growth, security analysts were agreed, although even then the trend of earnings was showing a considerable cyclical component. As late as 1965, Wall Street was putting a value of $12 billion on the company's outstanding stock. Today, that value has slumped to less than $7 billion, and at the bottom of last year's bear market it had collapsed to less than $4.5 billion. A year and a half ago, a leading business magazine symbolized Du Pont with a stack of blue poker c h i p s wrapped in cobwebs. More recently, another called it a sleeping giant. That may well be. When you're the biggest kid on the block, you just naturally are a target for brickbats. And when you've invented a product like nylon once, the assumption abroad is that you can do it again— and again.
But just as the great expectations held by many observers 10 years ago failed to envision the cutting competitive pressures and chronic price deterioration that would hobble the entire chemical industry (and especially the synthetic fiber business, which has consistently accounted for somewhat more than a third of Du Pont's sales volume and, at least until the past few years, perhaps almost half of its profits), so some of the uncomplimentary comments made about Du Pont in the past year or so may fail to recognize the company's basic strengths. Certainly Du Pont still has uncommon research savvy and innovative skills. And it has the financial wherewithal—no long-term debt other than $160 million borrowed by European subsidiaries, because of balance of payments restrictions, to finance overseas expansion—that provides the
staying power needed to capitalize on its research. Certainly, too, the company has learned some useful lessons as it has endured the travails of the past five years. Another single product with the significance of nylon is hardly likely today. When nylon was introduced in 1938, it opened the way to synthetic fiber sales now running to about $1.3 billion a year for Du Pont, a company that then had total sales of less than $250 million. Today, to have similar impact a new product would have to have a sales potential of the order of $15 billion by the year 2000. Any development of like magnitude is hard to conceive at present. Nevertheless, a myriad of smaller innovations collectively could have the same effect over the long run. More than half of Du Pont's current sales stem from products spewed out of its research organization in the past quarter of a century. 1970's goals. President McCoy has mapped out some of his firm's goals for the 1970's. "Our all-around objective, one that we think is reasonable, is to average an 8%-a-year growth in profits," Mr. McCoy states quietly but confidently. "We are convinced we can do it once we get prices and costs in line. "We recognize, though, that we are not likely to restore our rate of return to the levels of profitability we attained in the mid-1950's," adds Mr. McCoy, 62, who is only the second top executive the company has had who is not a member of the du Pont family. Just how the company is to reach this objective is less clear, however. Not through any radical shift of direction, it would appear. Du Pont seems chiefly determined to continue
DuPont fails to keep pace with other chemical firms in sales and profits ndex, 1960=100 i
250
250
~
Net sales
Net income
200
200*
Basic chemical industry^^
^0**^
Basic chemical industry
150
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150 uu ront
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Du P o n t - — - y ^ * * ^
^^*^
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Note: Excludes income from General Motors' investment prior to 1965.
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1960
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1965
Sources: Du Pont annual report; Securities and Exchange Commission, Federal Trade Commission
AUG. 16, 1971 C&EN 19
along the course already established, banking on improved overall productivity, higher prices, and better management of new products to restore its flagging profitability. Change, in any event, comes slowly at Du Pont and by means of deliberate evolution rather than sharp unheaval. Company management prefers to slug it out on the ground, relying on the business fundamentals that have served it so well in the past, instead of resorting to the managerial razzle-dazzle that has propelled some companies upward in recent years. Tradition seems to hang heavily throughout the long corridors and rows of businesslike offices that fill its two quite conventional office buildings dominating downtown Wilmington, Del.—a third will be occupied later this year. One doesn't easily forget, at Du Pont, that the company was founded in 1802 by a young French protege of Lavoisier to produce black powder (as it still does) on the banks of Delaware's Brandywine Creek. And the company can trace its ancestry, through a 1917 acquisition of Harrison Brothers & Co., to a firm set up even earlier at Philadelphia as America's first producer of sulfuric acid. Du Pont's overall strategy, which began to emerge in the late 1950's, basically has been three-pronged. On the one hand, it has invested heavily overseas, especially in the European Common Market. Meanwhile, at home, it has focused on expanding its traditional product lines by trying to pinpoint new markets—although ones generally related, at least in technology, to its current business— in which to launch new products designed specifically to satisfy those markets. At the same time it has poured heavy outlays into process design, engineering, and product improvement to lower costs and upgrade its established businesses while weeding out those whose potential seems to have dimmed. This strategy, as the past decade's record shows, so far has met with only limited success. Overseas operations. Profits have lagged overseas largely because Du Pont has been operating under forced draft there and has had to absorb heavy costs in getting established in markets where it ran head-on into already well entrenched competition. Du Pont was a decidedly late starter overseas—which is not surprising when you consider the profits it was reaping from synthetic fibers in the U.S. immediately after World War II. It has done business in Canada, Mexico, and elsewhere in Latin America for some 60 years. But these opera20 C&EN AUG. 16, 1971
tions were relatively small scale and to make neoprene rubber in Northwere largely shared jointly with ern Ireland and finishes in Belgium. Britain's Imperial Chemical Industries In the decade since, it has built its until U.S. antitrust action forced the European holdings into a complex of two to go separate ways in 1954. The several small plants in four councompany did not even have a full- tries and four major production cenfledged international department in ters located in Londonderry, Northern its home office until 1958. Total sales Ireland; Uentrop, West Germany; and outside the U.S. (excluding those of Dordrecht, the Netherlands; nonconsolidated subsidiaries such as Luxembourg. European investment Du Pont of Canada) amounted to $231 now totals some $660 million (vs. a million in 1960, a bit more than 10% "paltry" $60 million in 1960). of the company's total, and practically Meanwhile, Du Pont was investing all of this was exports. Consolidated elsewhere in the world: Japan, where operating investment abroad was a it participates in four 50%-owned mere $85 million. joint ventures; Mexico, where it has By then, however, the lure of the two subsidiaries, three 49%-owned afCommon Market had proved irresisti- filiates, and one 25%-owned affiliate; ble. Early on, as a m a t t e r of fact, South America, where there are four Du Pont recognized the unique oppor- manufacturing subsidiaries and one tunity that a common market in 72%-owned affiliate; Taiwan, where it Europe offered an American com- processes polyester film; and Australia, where it finishes photo products pany. "We looked at Europe as one mar- and formulates agricultural chemicals. ket right from the start," says BenAll told, the company now has an jamin F. Schlimme, general manager investment of $1.3 billion in 22 wholly of Du Pont's international depart- owned subsidiaries and 13 partially ment. "We're not Germans. We're owned (and nonconsolidated) affiliates not French. We're not Dutch . . , outside the U.S. Average Du Pont We don't have that problem." equity in such affiliates is about 55% And, adds a colleague: "When we on a weighted basis. went into Europe, we really looked Although many of these are still at it as if it were the New England primarily distributors of products exsales district." ported from U.S. plants, Du Pont has "We looked at it like the United a total of 77 foreign facilities employing about 25,000 workers (of whom States," corrects Ben Schlimme. And so from slow beginnings in less than 1% are Americans). Total the late 1950's, the company started sales probably will top $1 billion this
Du Pont's foreign sales have grown fastest in Europe Millions of U.S. dollars
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1961
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1966
1967
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1969
1970
affiliated companies in Europe rose European investment. It will remain about 17% over 1969. This year, the the largest segment of the business, company is anticipating a somewhat but pigments, agricultural products, smaller gain. New investments in plastics, photo film all will increase Europe will total some $65 million this their share of the market. Although Europe will continue to year. Reasons for Du Pont's interest in receive much of Du Pont's internaEurope are not hard to find. The tional attention for some time to company figures European markets come, other areas beckon too. In the are more receptive to new products, Far East, and mainly in Japan, Du especially such technologically so- Pont chalked up a 20% growth in sales phisticated products as synthetic in 1970, but does not expect to do as fibers (which account for 40% or more well this year. In Latin America, the European sales) and engineering plas- company looks for a sales growth of tics, that it thinks offer the best pros- 4% this year, compared with 8% last pects for overseas sales. As Ben year. Canada, though, has been disSchlimme points out: "Europe will appointing and sales were down 2% continue to be the high growth in- last year with not much better prosternational area for Du Pont because pects in 1971. Long-range plans in less developed our products are fairly sophisticated . . . and Europe is the most developed areas are still very much in a formamarket. In fact, it's interesting that tive stage. The company considers in many areas, products are easier to Brazil, for example, a rapidly developput across in Europe than they are in ing country and plans on increasing the U.S. We found this, for example, investment there "drastically" during in Delrin plastics." Somewhat surpris- the next 10 years. India? Not much ingly, at least in terms of the com- activity there yet, but Du Pont sees monly held stereotype of European potential for agricultural chemicals. conservatism, Du Pont has found Red China? "We're not planning any Europeans more receptive of innova- effort to do business in China . . . tions in materials, especially plastics, we'll let it develop." Ping-pong diplothan are Americans. More than 40% macy may speed China trade someof Du Pont's sales of Delrin acetal what, but few look for much more resin, for example, are abroad, and a than marginal developments for some plant to make Delrin in Dordrecht is time to come. Africa? No major innow abuilding. Down the road, terest in the near future. East bloc? though, fibers will likely represent a Sales from Du Pont's western Eurodecreasing share of Du Pont's new pean operations are up "rather sharply" and now such sales amount to 1.5% of total European sales. More important than growth alone, Europe has half du Pont's operating investment abroad Du Pont thinks it has reached the stage where it is now well established Millions of U.S. dollars abroad. The big period of heavy startup and preoperating expenses lies behind it. Thus, profit margins Far East are now improving outside the U.S. and earnings should start to flow back Latin American to Wilmington at a faster clip. The Canada company hopes that European earnings, for instance, should be up by W. Europe well over 100% by 1975. Becoming multinational. Meanwhile, Du Pont is taking on some of the trimmings of a multinational concern. Less than 1% of its overseas employees are U.S. nationals, and the majority of its foreign plants are run by local citizens. Thus, a German heads up the company's photo products business in Europe. An Englishman headed up Corfam operations. Only 11 heads of foreign businesses are, in fact, U.S. citizens. Mr. McCoy thinks the company may generate as much as 40% of its total sales from its overall foreign operations eventually. Still, is Du Pont truly multinational? "Well, let's say we are becoming Although data for 1970 are on a different basis than in prior years, the information is compatible. [C&EN emphasis] a truly multina-
year, nearly triple those of 1960, with about half in Europe and a fifth in Canada. Exports have continued to climb, meanwhile, although at a slower pace; last year they totaled $345 million, up 50% from 10 years earlier, and about 1% of total U.S. goods exported, as Ben Schlimme likes to put it. The figure also represents about 9.5% of total technical industry export. But the overall thrust has been to manufacture outside the U.S., once a significant market for a Du Pont product has been carved out by means of export. Nevertheless, as Mr. Schlimme points out, foreign investment doesn't necessarily cut into exports, at least not for Du Pont—at least not yet. At any rate, Du Pont officials expect business to continue to expand more rapidly overseas than in the U.S., although probably not at the rate that marked the past decade. And it was quite a decade for Du Pont's foreign sales. In the 10-year period (1960-70), total foreign sales on a consolidated basis tripled while company sales nearly doubled. Looking ahead to 1975, Du Pont executives are looking for international sales to increase about 50%. But it will be Europe, in fact, that will continue to be the focus of the company's foreign efforts, and the company expects both investment and sales to double there by 1975. Last year, total sales of wholly owned and
a
AUG. 16, 1971 C&EN 21
tional company," says Ben Schlimme. "And maybe when we are really a multinational company throughout, why we'll operate a little differently from what we are now. I think we are multinational in Europe. In other words, businesses in Europe are integrated and they run as multinational businesses. . . ." For Mr. Schlimme, being multinational means thinking from an international basis r a t h e r than from a local basis. Ties to the U.S. remain firm, nonetheless. Du Pont prefers to operate through wholly owned subsidiaries wherever local laws permit, and one third of the directors of its overseas subsidiaries and affiliates are Americans. "We will continue to look at the U.S. as home port for a long time to come," Mr. McCoy notes.
But it's a home port being invaded m o r e and m o r e by foreign businessmen. Just what impact will such a home-based foreign competition have? "They are coming here with much more confidence . . . Wyandotte . . . International Salt . . . we'll see a lot more of them and they'll get better," muses Ben Schlimme. "Mostly it's in the German companies, European companies. Someone once asked m e if I could n a m e any Japanese companies that were operating on an operating basis outside of Japan. I couldn't. The Japanese are getting very aggressive, but more on an investment basis. This is something they've got to learn . . . . They will, b u t I venture to say that it will be almost as difficult for them to come into the U.S. as it was for us to go into Japan.
They will find it difficult to come into the U.S. and operate. And I daresay even the Germans have found some surprises. Badische, for example, at Hilton Head. "Hilton Head may be a special case, of course, b u t I don't know of any U.S. companies that tried to go in there . . . . I think that's the kind of thing that happens when you don't know how to operate in another country." If expansion overseas has tended to undercut corporate profitability, the biggest crunch has been right at home. Like every major chemical company, Du Pont has been painfully caught in the vise of rising costs and falling product prices. The company's price index is down 22% since the late 1950's, with the worst of the deteriora-
Social responsibility: patrician in flavor Like so many other aspects of Du Pont, the company's outlook on its social responsibilities seems tinged with a patrician flavor —a distinct sense of noblesse oblige (and we certainly don't mean this unkindly). But this image of noblesse oblige, which in other times would not be a liability, is one that Du Pont now seems to be trying to live down. This is no easy task, however, and it is sometimes almost a matter of "damned if you do and damned if you don't," at least in the Wilmington, Del., area, where the company has been accused both that it neglects the community and dominates it. At first glance, it might seem impossible to do both, but reflection might show that it is, in fact, very possible, at least until one fully understands all of the problems. And understanding the problems is just what Du Pont is now trying to do—and with some success. Du Pont's contributions to various organizations, most of them social in nature, currently entail total annual outlays, in one form or another, of about $5 million. Aid to education represents about half of this sum. In addition, Du Pont people donate volunteer help to the tune of some 50 manyears annually. But what is the main thrust of Du Pont's efforts from a policy and philosophical standpoint? In his matter-of-fact yet determined way, director of employee relations John Oliver puts it this way: "The basic corporate policy is that, for a private business to exist and prosper, it must do so in a nonhostile atmosphere and as a consequence, we feel that a corporation has an obligation to be aware of problems and to contribute in terms of both resources, expertise, and manpower to the identification and solution of social problems in the areas in which we have major employment points. . . . It doesn't mean that we're going to try to 22
C&EN AUG. 16, 1971
solve these problems single-handedly or force solutions down the throats of other people in the community, but it does say that we are to be good citizens and involved and make our full contribution to the solution of these problems. . . . We are going to be a good citizen, contributing proportionately to our size and resources and expertise in the community to the identification and solution of social problems." Not exactly a ringing declaration or dramatic call to social arms. But then, it is not bad either, and it's very Du Pont in flavor and tone. The company may not have been avant-garde in its approach to its social responsibilities. But then, how many companies have? On the other hand, basic corporate policy seems to be fundamentally enlightened, if a trifle stuffy in tone. One gets the distinct feeling that the company on the Brandywine will relentlessly, but quietly, push on with its socially related problems until it has worked out a comprehensive and welloiled, but not perhaps particularly exciting, campaign aimed at measuring up to president Charles B. McCoy's ideas of "social efficiency" (C&EN, Sept. 14, 1970, page 5). Although Du Pont is interested in social activities in all areas where it maintains facilities (and in outlying areas, each plant manager is responsible for his own community relations), the company's main interests, at present, understandably center on the greater Wilmington, Del., area. According to a recent issue of the company magazine, Better Living (spring 1971), Du Pont's social efforts in Wilmington revolve around community improvement in general, housing for low- and moderate-income families, education, jobs, and minority business development. The prime focal point for much of the activity going on in the Wilmington area is the
Greater Wilmington Development Council (GWDC). Set up in 1959, GWDC, which was at first oriented around business (with Du Pont a leading industrial supporter), now includes representatives of labor and minority groups in addition to people from all major companies, professions, and schools. GWDC's first job was to establish a philosophy of planning. Then, it moved on to spark plug such projects as completion of the Delaware section of I-95 Freeway and sponsored programs involving intercity neighborhood improvement, educational innovation, jobs, housing (through Greater Wilmington Housing Corp., an outgrowth of GWDC and an organization headed by Du Pont's James A. Grady, director of the company's central systems and services department), and job training for the disadvantaged. As one Du Pont man puts it, the company's earlier efforts in the social area represented pretty much "bricks and mortar," important, to be sure, but not quite to the heart of the matter. "Something really had to be done about the individual social and human problems, not just about bricks and mortar alone," he notes. And so GWDC moved into other projects, such as the Neighborhood Improvement Program, which was aimed at giving attention to some of the individual needs of the people in the downtown Wilmington area. Delaware's current governor, Russell Peterson, formally director of research and development in Du Pont's development department, headed this program. Under the program, which ran for three years, an attempt was made to set up an organization to help people in the downtown area find housing and jobs. According to a Du Pont man, this effort, although not "fabulously successful," did serve to show that people problems had to be attacked simultaneously with mortar and brick problems.
tion in the past five years, as fiber markets were glutted by chronic excess capacity and prices on plastics and commodity chemicals were severely eroded. "Chemical prices have got to go up/' complains company economist Charles B. Reeder. "There is no other way. We can absorb only so much in the way of cost increases for labor, energy, freight, and the like through improved efficiency and productivity." Last year, in fact, productivity in the chemical industry increased at only about a third the rate that average hourly wages rose. New products. Du Pont has banked heavily on the output of its research labs to stave off the impact of intensifying competition in its older markets. Its faith hasn't been entirely mis-
placed. The fecundity of its renowned labs has been, if anything, greater than ever. New products were introduced at a rate of about five a year during the 1960's, roughly double that of the previous decade. Among them: Delrin acetal resins, Lycra spandex fiber, Nomex fire-resistant nylon, spunbonded fabrics, Lannate methomyl insecticide and Benlate benomyl fungicide, Viton and Nordel synthetic rubbers, Dycril photopolymer printing plates, Crolyn magnetic tape, Qiana nylon, Surlyn ionomer resins, Vespel and Kapton polyimide products, Symmetrel antiviral drug, plastic building components, Teflon heat exchangers, and a line of laboratory and control instruments—not to mention the late lamented Corfam poromeric material. But the cost of commercialization
was higher than the company had planned, unhappily, and commercial success disappointingly slow. Often technological creativity led only to protracted financial bloodletting. Of some two dozen major new products introduced in recent years, practically all are still awash on red ink. Says vice president Edwin A. Gee: "The new venture program simply has not produced the results we expected/' "New products, particularly those going into new markets, now are just more difficult to introduce successfully," president McCoy admits. "Perhaps a lot of the cream was skimmed off in the early postwar days of rapid technological development. And, of course, more of our competitors are working hard at research now. Not only do they tend to catch up faster,
But it's probably in the area of education that Du Pont is now making, and has made during past years, its greatest social contribution. Through GWDC, Du Pont has participated in various programs aimed at improving education. And, of course, Du Pont, building on its traditional commitment over the years to education, has lent assistance in more direct form. Thus, consider these community educational endeavors: • Upward Bound. Du Pont initiated this program with seed money of $8000 to the University of Delaware in 1965 for a study to work out a program. In 1966, the company granted the university $50,000 to implement the program, then known as the precollege opportunity program. Late in 1966, the Government stepped in and set up its Upward Bound program, aiding with funding and direction. Du Pont still contributes $25,000 a year. • Community schools. Du Pont has contributed $150,000 to the Wilmington board of education to help keep certain city schools open in late afternoons and evenings over a three-year period. The idea behind this test program is to help schools become centers of community activity. • Educational skills—occupation. Du Pont has provided $45,000 a year for two years now to underwrite a program aimed at trying to salvage "worthy" dropouts. Participants in this program go to school half a day, work half a day (initially in Du Pont facilities). The idea is to lead the participants toward the equivalent of a high school diploma. • Counseling program. Du Pont has sponsored an experimental counseling program wherein councilors, drawn largely from within the company, speak to schools or assemblies within the community about their work, what it takes to qualify for such work, what education is needed, and the
like. Main purpose is to encourage young people to stay in school and prepare themselves for employment within the community. Du Pont has also participated in a number of programs aimed at developing jobs and minority business. Du Pont has participated in programs established by Opportunities Industrialization Center, Inc., the National Alliance of Businessmen, and the Wilmington Business Opportunities and Economic Development Corp. In these projects, Du Pont helps both with money and counsel. To coordinate company activities in the social area, Du Pont recently set up a new Public Affairs Committee, under the chairmanship of vice president Irving S. Shapiro. The new committee combines functions of two previous committees (the Community Relations Committee and the Governmental Affairs Committee), its five members include the heads of the employee relations department, the legal department, the central systems and services department, and the public relations department. The committee is responsible for general company policy guidance in the public affairs area and serves as the central focal point for all company activities of this nature. And so, there is no doubt of basic commitment. By probably all the criteria that were good enough, at least in the past, Du Pont has measured up very well indeed as a "socially responsible company." But what about Du Pont's record in terms of the new social relevance that today's "now" generation is so caught up in? How does the company stack up in say pollutants that its many plants may be discharging into the air and streams? And how will its product lines fare under increasing scrutiny of pollution watchers and consumer advocates? Time will tell, of course, but the company should come off at least as well as most of its competitors and quite
possibly may come off just a bit better. About a year ago, a Ralph Nader team intensively studied Du Pont's Wilmington facilities for some three months. A final report of that group hasn't been published yet, although it is due momentarily. Just what the report will say is anybody's guess for now. The company doubtless won't come off unscathed. Take a company the size of Du Pont, consider its vast and complex operations, and subject them to the missionary zeal of a corporation-baiter like Ralph Nader, and there almost certainly will be a few soft areas that will become apparent to people as probing as "Nader's raiders." Du Pont has been accused of polluting from at least one of its facilities, that in East Chicago, Ind. And last fall the company drew fire for a Zerex antifreeze TV commercial (one showing a can of zerex under no pressure, presumably, other than its own vapor pressure, being punctured, then sealing itself). Perhaps this is a hint of things to come. In any event, for a company with the pride and record of Du Pont, the Nader visitation and the long vigil as the report is awaited probably have been more than a little galling. The irritation is obvious when one talks to Du Pont people. And they are taking very great care not to comment officially on Mr. Nader or the work of his team until the report is made available. Still, it's a good bet that the company will fare reasonably well at least in the large scheme of things. "Good citizen" is a term heard frequently around Du Pont's executive office these days, and there is no doubt that the Du Pont people firmly and sincerely believe that the term is appropriate. Although the title may smack of smugness, and may be a corporate cliche, it's hard not to agree, overall. Whether Ralph Nader and his raiders will do likewise is quite another question. AUG. 16, 1971 C&EN 23
but they also bring out distinct new products of their own which may cut back on the size of the market we had in mind. All these things make it a tougher, faster game in the chemical industry. Maybe we were just a bit naive to think we could continue to knock off new ventures like we used to—although you are bound to be an optimist, of course, when you start off on these things." Development department director Monroe S. Sadler spotlights some of the difficulties that befell several new ventures. (The development department takes over a project from the research labs once a clearly defined product exists for which a definite market can be visualized.) "In a number of cases," he relates, "timing was more critical than we had realized in getting new products successfully onto the market. We sometimes misjudged our competitors' capabilities and efforts. We tended only to look at what they were doing at the moment, rather than what they would be doing two or three years down the road. As a result, by the time we got to where we wanted to go, we found some of the opportunities we had in mind had vanished." Delrin is something of a case in point, although one not involving the development department. Introduced in late 1959, after 12 years of work and a $50 million outlay for research, development, and operating investment, the polyacetal resin is described as a "complete commercial success now" by Commercial Resins division's George Read. "We have done better, volumewise, in fact, than we had originally projected," Mr. Read claims. "But then we were hit by early price reductions, too, and we were far slower in meeting our profit goals than we had planned." Why? Mr. Read puts much of the blame on a competitive product, Celanese's Celcon acetal resin, which much to Du Pont's surprise hit the market within two years of Delrin's debut. "There have been times, too," Dr. Sadler notes, "when we just haven't understood a new market as well as we thought we did. "We didn't realize how tough it might be to crack or recognize that our marketing skills were inadequate. As a result, several new ventures have not worked out as we had expected." Symmetrel is one recent example. Chemically amantadine hydrochloride, Symmetrel was introduced in 1967 as an antiviral drug that prevents Asian influenza infections by interfering with penetration of the host cells by the flu virus rather than by inactivating the virus in itself. 24
C&EN AUG. 16, 1971
"We had a scientific breakthrough on our hands," recalls Roger E. Drexel, general manager of the industrial and biochemicals department, which was responsible for marketing the new drug. "But we couldn't follow it up with a commercial success." Dr. Drexel lays this failure to the public's lack of interest in preventive medicines (except vaccines and contraceptives) and the self-limiting characteristics of flu. Symmetrel also had to buck the well-known and widely accepted flu vaccines. "In retrospect," he believes, "if we had had a strong marketing a r m in pharmaceuticals, we might have sensed this." Du Pont has by no means given up on pharmaceuticals. Virology, along with other aspects of medicinal chemistry and biochemistry in general, continues to be a major focus for exploratory research. And to give itself the marketing a r m that was so sorely lacking, a year and a half ago Du Pont bought Endo Laboratories, a family-owned, Garden City, N.Y.-based producer of ethical drugs. Du Pont paid 650,000 shares of stock, worth more than $173 million, not just for Endo's relatively small ($25 million) sales volume or for its research activities but as a launching pad for new drug products from Du Pont labs. For Du Pont, it probably was a question of either acquiring an established marketing group—Endo had a 275-man detail force to sell its two dozen ethical drugs in the U.S.— or scratching its pharmaceutical ambitions.
Product value. Du Pont, too, may have misjudged the value of some of its new developments. "Value-in-use" is an expression heard frequently among Du Pont marketing men. The idea is that a new product, even if it has to be priced above competing materials serving the same market, should win consumer acceptance (and big profits for Du Pont) if it offers advantages in use (such as lower maintenance, greater durability, higher strength, and the like) that other available materials lack. The difficulty lies, however, in judging in advance just what added value consumers will attach to the improved properties and hence what the potential market might be for a more expensive material. Corfam may provide a classic instance of these difficulties. Here was a product that admittedly was troublesome to produce and inherently expensive. Du Pont had been working on its development for 30 or more years, off and on, before it finally thought it had all the technological problems licked. The pliable, leatherlike material that it finally came u p with, a microporous sheet of polyurethane reinforced with polyester fiber, seemed to have all sorts of value-inuse features. It was uniform and easy for shoe manufacturers to work with; it was durable and resistant to water, scuffs, and abrasion; it was easy to keep clean and shiny. Du Pont focused its most sophisticated market modeling and consumer testing techniques on the leather and
Looking tor untapped opportunities to sell its in-house technology, Du Pont came up with, among other things, a computer program to design piping systems
shoe business and felt sure that it had a winner. Introduced in above-$20 shoes in 1963, Corfam initially garnered favorable reaction. Du Pont sold all that it could turn out from its first small-capacity plant. And while the company itself was cautious in projecting market penetration, general talk in the industry was that Du Pont finally had come up with another product that would do for leather what nylon did for silk. Corfam would be more expensive to commercialize than nylon, to be sure, but its market potential also appeared to be even greater. Although upwards of 100 million shoes have been made with Corfam, the market never developed as Du Pont had hoped. Production costs remained disappointingly high. Competition from lower-priced leathers and other synthetic materials, especially polyvinyl chloride, coupled with more buyer resistance—on esthetic or comfort grounds—than Du Pont had ever expected, finally proved discouraging. So the project has been given the boot, inventory stocks have been sold off to George Newman & Co., a Boston leather goods supplier, and Du Pont has its hard-won poromeric technology up for sale as well. Qiana, the silklike polyamide fiber Du Pont introduced three years ago (after 20 years of development work) is another, hopefully more successful, product whose success rides on value in use. Qiana, like Corfam, has been aimed at the high-price end of the market: $50 dresses, $35 blouses, $25 shirts. "We've passed the introductory stage," says "Qiana" division director Carl E. Black, "and the arrow is pointing up." Qiana started with a limited product line aimed at the top of the woven apparel market. The generally weak textile market and widespread retailer and consumer uncertainty about fashion hampered its move beyond that initial target. Now, Dr. Black says increased momentum will push 1971 volume above levels forecast earlier in the year. He ticks off the reasons: a broadened product line for knits as well as wovens; increased production; a swing to dressier dresses in soft, drapey fabrics; price reductions that make possible dresses in the $35 range and blouses at $15 for next spring. Dr. Black expects sales of Qiana to more than double this year compared with last and "to do so again in each of the next few years ahead. "It's the most versatile fiber we have," he adds, "combining luxurious
Du Pont's selling prices have dropped sharply Du Pont Price Index, 1967=100
120
110
100
Estimate
I
90 1960
I
I
.1 1965
esthetics with really high performance. We now have products for a broad range of markets, and I'm convinced that Qiana provides Du Pont and the textile trade with a much needed opportunity to diversify their product lines." One fast-growing area tied to Du Pont's concept of value in use is the products of the Spunbonded Products-Nomex division of the fibers department. Tyvek high-density polyethylene is the most versatile of the spun-bondeds and has certain qualities of both paper and cloth. It is used as a replacement for paper in hospital and industrial disposables, to make weather-resistant tags for out-of-doors identification, as well covering, and for envelopes, where postage savings due to its lightness more than offset its higher cost. Typar, made of polypropylene fibers, is more limited, finding its principal outlet as primary backing in the fast growing carpet market. In addition, important growth is being experienced in bagging, packaging, furniture, and bedding uses. Reemay, the oldest of the group, is a polyester spun-bonded sheet used for apparel interliners, and, in its largest present single use, as backing for sponge rubber carpet underlaying. Nomex is a high-temperature-resistant fiber that also is made into paper form. As a fiber its distinctive performance properties meet the stringent demands of manufacturers of protective clothing, commercial carpets, and filter media. As paper,
!
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II 1970
1971
Nomex is making inroads in the electrical insulation field and also as a honeycomb structure used in boats and aircraft. Reemay is essentially sold up to capacity, according to R. W. Trapnell, marketing director of the division. Sales of the other products are running at an average of 80 to 85% of capacity. Sales of most of the products are growing at 20 to 25% per year, and after five years of marketing effort, the overall operation is now contributing to fibers department earnings. Innovation important. Despite disappointments, Du Pont continues to stake its future heavily on innovation. Roughly a third of the company's research and development outlay ($258 million last year, up 50% from 10 years before) goes for "exploratory" research by the industrial departments and the central research department aimed at opening up new areas of possible interest to Du Pont. The balance is spent to improve or extend established products or processes by the labs of each industrial department. (A Du Pont "industrial department" corresponds to an operating unit that would be called a division in most other companies, and each of the 12 departments may in turn have several separate "divisions" within it.) Departmental research effort of an exploratory nature is concentrated on established areas of business. Central research, explains D. M. McQueen, who recently retired as diAUG. 16, 1971 C&EN 25
rector of the department, is more "discovery oriented" in fields the department thinks will be important to Du Pont in the future. Partly the difference between an industrial department's exploratory research and that carried out by central research is one of time scale. Industrial departments focus on five years or less in the future, central research often 10 years or more. One area, for example, which central research feels has "big implications" for the future is virology. More and more diseases, Dr. McQueen points out, are being found to be virus-caused. Virology presents another facet of central research's philosophy. Being limited on the amount of work it can handle, central research feels its function is to open up fields of research, rather than to work on "bandwagon areas." Thus, the department has a program in virology but is aiming its projections away from those areas—bacterial viruses, for example—in which universities are doing a lot of work. Central research programs usually are relatively small in scale, involving only a few scientists. Once a project seems ready to blossom into a major team effort, it probably will be shifted to one of the industrial department labs. Maybe half a dozen promising new products come out of central research in a typical year, although probably no more than one or two of these are likely ever to be actually carried all the way through to the market place. It is the job of the development department to ride herd on ventures that don't readily fit into any of the established industrial departments. Most new ventures, however, are conceived and delivered within the industrial departments or taken over by those departments after a few years of cultivation in the development department. At present, the department has two major projects under its wing: building products (a line of cast nylon shutters, bifold doors, and other mill work items for housing and methacrylate sheeting for bathroom vanities and paneling, and kitchen counter tops) and heat exchangers made of Teflon fluorocarbon resin. The department also was involved in developing office copier technology until that venture was axed about a year ago after Du Pont decided that the potential did not match the risk of marketing its product against a firmly entrenched competitor. "Our technology was all our own," Dr. Sadler avows, "but we concluded that our product was not all that much better." 26
C&EN AUG. 16, 1971
Development department's Dr. Monroe Sadler: "We will have to move away from our traditional posture"
Du Pont executives, both in research and new product marketing, are convinced that hopping on an already crowded bandwagon is not for them and that only a product or process that can make a clear-cut contribution is worth bothering with. The Development department also serves in a staff function, doing venture analysis and other studies for other departments or for top management. It handles Du Pont's outside investments as well. During the early 1960's, Du Pont decided that providing venture capital for small firms would be a good way for it to get what Dr. Sadler describes as "a window on new technology outside our traditional areas of interest." Thus Du Pont acquired minority positions in four small high-technology companies: Danalab, Inc. (digital equipment), Block Engineering (optical equipment, including analytical instruments), Cryogenic Engineering, and Ocean Science and Engineering. "Looking back on it," Dr. Sadler admits, "this hasn't proved to be an effective means of accomplishing what we set out to do. We expect that we will find our major opportunities in the future will lie in internal development." In any event, the investment in Ocean Science and part of that in Cryogenics Engineering have now been sold off. Meanwhile, like many companies, Du Pont operates technical listening posts in Europe as well as in Japan. The technical representatives who man these posts try to be Du Pont's eyes on the world of foreign technology. So far, apparently, the company has not imported any large amount of foreign technology. But this may well change, especially in the case of Japan. Says Mr. Schlimme: "I think we'll see change in Japan . . . first in process development . . . then product development. We've taken some licenses. And I think there'll be a lot more . . . they're very innovative. And they've done some good process work."
Profit centers. As new products— and the problems related thereto— have proliferated, Du Pont has increasingly felt the need to exert better management and control over such ventures. One answer has been to set up a number of profit centers within each industrial department. The concept is by no means new, of course. The departments themselves, which were spawned out of a wave of acquisitions that put Du Pont into plastics, paints, coated fabrics, heavy chemicals, pigments, agricultural chemicals, and a raft of other chemical products between 1910 and 1933, were originally "profit centers." Each by now, however, has expanded into a large and diversified business all its own. The more recent shift to profit centers has been an evolutionary redefining of management responsibility rather than a radical changeover. It started about 10 years ago in the plastics department, when the polyethylene business was set up along these lines. At that time, the department's management could see that a large increment of capacity coming into the U.S. polyolefins market would face it with serious pricing and selling problems. Rather than try to compete across the board, it decided to concentrate in a few segments of the market—"where we thought we could bring something more than just a commodity to the party," as one plastics executive puts it, and the valuein-use ploy could be brought to bear. It chose wire coatings and packaging. (The polyolefins division now also markets nylon resins for making film and Surlyn ionomer resins for wrapping meats and skin packaging.) Within a couple years three other divisions were carved out of the plastics department: fluorocarbons, plastics products (fabricated products such as polyethylene pipe and fittings, nylon strapping, and polyimide parts), and commercial resins (engineering plastics such as nylon, acrylics, and acetals). Now the concept has spread widely throughout the corporation. The industrial and biochemicals department, for example, set up two profit centers within the past year or so to handle industrial specialties and pharmaceuticals. The electrochemicals department likewise was split just last fall into three profit centers: chemicals products, polymer products, and electronic products. A typical profit center is responsible not only for domestic marketing, but also for product research, financial planning, and in some cases, manufacturing, as well as for developing over-
seas business. The aim is to push the decision-making process down to a lower level of management and thus bring the total operation in any one line of related products closer to the market place. This not only ties product research and engineering more closely to market needs but makes the entire management structure more flexible. "It pins responsibility where responsibility really lies," says Dale Wolf, director of I&B's industrial specialties division, "and makes the whole business more manageable." "We call it our one-fanny system," adds Bailey H. Barnes, general marketing manager of the prototype polyolefins division in the plastics department. "Now, if things don't go right, the top brass know where to aim their kicks." Meanwhile, marketing groups in several of the industrial departments are cooperating to cut across the traditional departmental lines so that all Du Pont products aimed at a single industry can be handled by a single sales force. The key to new ventures now, Monroe Sadler feels, is in greater and more careful selectivity. "We probably have been undertaking more than we could handle effectively in the past 10 years," he suggests. "We let down some of the barriers in the interest of bringing new products along faster, and we wound up trying to force some developments that might never have passed muster in earlier years." At one time the company had all of 32 active new ventures under development, now it has about 15 in the works that it hopes to bring along to commercial status. "Of course," Dr. Sadler continues, "the manager of any new venture will
try his damnedest to make his project succeed, sometimes at almost any cost. This is fine, as a general rule, but you have to counteract his entrepreneurial drive somehow with some sound, hard^eaded business judgment." Selectivity does not necessarily mean greater rigidity in setting standards for new products, however. If anything, in fact, Du Pont may have moved somewhat in the opposite direction. For years Du Pont management was reputed to worship the creed of return on investment—20% before taxes was widely believed to be the minimum management would accept—as enshrined in the company's famed (but rarely, if ever, imitated) chart room, where a series of large, interrelated, trolley-hung financial charts were used monthly by the executive committee to analyze the profitability of the company as a whole as well as each individual department. Now the chart room has been dismantled, although the executive committee still has copies of some of the charts prepared for its perusal. "Maybe the chart room just got to be sort of a game that we had become accustomed to play," president McCoy smiles. "But even though we use different techniques now," he is quick to explain, "in judging new investment you still have to come back to the fundamentals, and return on investment is one that you can't ever get away from." Executive committee. The executive committee itself has undergone some changes. Consisting of president McCoy and all eight vice presidents, the committee meets weekly to set and oversee broad corporate operating policy. Although individual vice presidents have long tended to spe-
What's an old chemical company like Du Pont doing in a prison classroom?
cialize in specific aspects of company operations, not until last year were any of them assigned definite responsibilities to act as liaison between the committee and one or two of the 12 individual industrial departments. Now each department manager deals with just one committee member instead of all nine but the committee as a whole is in closer touch with overall current operations. "We don't have any hard and fast rule or figure of merit," Monroe Sadler points out. "We look at expected return on investment averaged over the first several years of commercialization. But we also look at discounted net cash flow, how long it will take to get our investment back, and the total amount of investment needed to break into a new market. No single figure can really measure the worth of a project or show whether it will fly." Dr. Sadler is convinced, too, that Du Pont must broaden its sights. "If we are to stay alive," he argues, "we will have to move more and more away from our traditional posture as a manufacturer and seller of chemical products that are converted or fabricated into finished consumer products by somebody else and more and more toward becoming a supplier of end products and services ourselves." Du Pont is already moving in this direction on a few fronts. The development department's building products division is a case in point. "A departure from our traditional chemical image," Dr. Sadler calls it. The division is oriented toward specific markets, having been set up to exploit technology already available within Du Pont in the complex and— to Du Pont—largely unfamiliar home construction and improvement business. Hence it has been more concerned with searching the other departments' already loaded shelves for materials than with developing new materials of its own. Interestingly enough, however, the nylon products it makes are molded from nylon 6 made with raw materials bought outside the company rather than from the nylon 66 that Du Pont's own plastics department produces. To capitalize on previously uncommercialized technology originally developed solely for internal use, Du Pont also is marketing a line of analytical instruments for process and product control and pollution monitoring. Still a relatively small venture, the eight lines of instruments were transferred a couple of years ago to the photo products department (now Du Pont's fastest growing group) and were beefed up last year with the purchase of Bell & Howell's AUG. 16, 1971 C&EN 27
analytical instrument business. Here, too, the initial intent was to market products that Du Pont had devised previously to fill- its own needs. As it turned out, however, out of several hundred such instruments that were evaluated, only two, a photometric analyzer and a thermal analyzer, seemed worth marketing. The rest of the instrument line was either acquired or developed by the Instrument Products division itself. Probably the furthest the company has strayed from its traditional chemical interests, however, is into employee training programs. Du Pont's first undertaking in the broad field of industrial services, the training venture was conceived in the development department out of material that the engineering department had worked up over the past dozen years for its own training programs. Now it is being brought to fruition by a profit center set up last January within the organic chemicals department. Currently available are 156 programed instruction courses on subjects ranging from chemistry and safety to pipefitting and water treatment. Customers include schools and prisons, as well as competing firms. The project may be expanded to include a consulting service in fields like power conservation and waste disposal. The organic chemicals department also is starting to offer a computerassisted pipe sketching system (CAPS) program developed in the engineering department in the late 1960's for customers outside the company. The department claims that the CAPS program can cut by up to 30% the cost of designing and installing piping, which may account for roughly a third of the total cost of a typical chemical plant. The goal behind both the instruction and the CAPS services is to exploit skills previously utilized strictly within the company for making money in the broad world outside. Does all this mean that Du Pont one of these days will no longer be a "chemical" company? And if so, what will it be? Opinion within the company is a bit divided. "Our background is in chemistry and the things that we do most successfully are based on chemicals," states R. D. Scheer, director of the I&B department's industrial sales division. "We are a seller of industrial materials based on research and manufacturing skills tied to chemistry," contends Bailey Barnes of the plastics department's polyolefins division. Unlimited future. 28
C&EN AUG. 16, 1971
President
McCoy,
deliberate and soft-spoken, sums it up this way: "We must push out from the bases where we have strength, and that means engineering, chemistry, physics, and the other physical sciences. We are gradually moving, too, more and more into bioscience and instruments. And while we have taken a look at things completely outside these areas, such as real estate, I don't think we have ever come up with anything that really suits us—and it's unlikely that we will. The amusement industry or restaurant chains or retail distribution may be tempting, but we have to acknowledge that we don't have all the talent in the world and we have to try to make the best of what we do have. "So long as we don't get so rigid that we can't change with the times and so long as we can continue to attract good people, I don't see what the limit to our future growth will be. We may not shift directly into whatever industry is destined to replace electronics or computers as the growth business of the 1970's, but if we are fast enough on our feet to move with the economy—or even keep ahead of it a bit—we expect to be either a supplier or a contributor to that industry." Will greater care in selecting new products, the profit centers' closer ties to the market place, and continued overseas investment combine to restore the luster to Du Pont's growth record? The verdict is not yet in. President McCoy is not likely to get his 8 to 10% earnings growth this year. Business has rebounded more slowly than had been expected. Sales during the first half totaled $1.9 billion, up 2% from the like period of 1970, and hit an all-time high of $988 million in this year's second quarter. But earnings during the first six months of the year were down 11% to $167 million. The rest of the year should look a bit better, however. Mr. McCoy expects profits during the second half will top those of last year's final six months, which were particularly weak, and looks for the year as a whole to show a gain. The overall tone of business is firmer, he points out, and some of Du Pont's efforts to improve earnings are beginning to show results. In the long run, the goals the company has set for growth of profits remain valid, he insists. Du Pont estimates that the demise of Corfam will penalize earnings by an additional $3 to $5 million this year. Earnings, too, will bear the brunt of an estimated $50 million expense (last year's bill: about $40 million) in each of the next three years to
i operate and maintain pollution control equipment. Selling prices have at least stabilized so far this year, although operating costs continue to spiral upward. And business continues to be hurt by imports—not just direct imports of fibers, plastics, and chemicals but also of consumer products, such as finished garments and automobiles, into which they go. Du Pont also will be sinking about $500 million into new plant and equipment in 1971, up from $471 million last year, suggesting that a considerable dose of startup expenses may not be far over the horizon. "In general, I would characterize Du Pont as a well-tuned machine that is ready to go," Mr. McCoy says. "Du Pont has been, and remains, a venture company. We must, inevitably, lose some but will continue to develop new venture opportunities and to seek growth through technical innovation. This is our business, and our successes . . . convince us that we have some skills in it." Mr. McCoy sums up Du Pont's outlook as "cautiously optimistic." Under the circumstances, that hardly sounds like an understatement.
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