Change produces success for Celanese Celanese Corp. is unarguably the chemical darling of Wall Street. The company's market value, barely more than $700 million in 1982, has soared to $2.3 billion at the end of this year's first quarter. Sales have not recovered to 1981 levels; yet net income and return on equity have increased. Not bad for a com pany with 80% of its sales in com modity chemicals and fibers—prod ucts that many consider to be a "dog" business. But the perception of commodi ties as a dog business and the reali ty for Celanese are two different things, says Ernest H. Drew, a group vice president at Celanese. "It wasn't done with smoke and mirrors. It took a lot of hard work and strong leadership." And it took change. Change in organizational structure. In R&D em phasis. In diversification effort. And in financial condition. All of this change, says Drew, is designed to position Celanese for the future. Each element is important and sup ports the other. Drew outlined those changes and what Celanese plans to do for an encore at a recent meeting of the Chemical Marketing Research As sociation in New York City. Typical of a commodity business, with growth tied to gross national product, Celanese's sales have been down over the past five years, from $3.75 billion in 1981 to barely over
$3 billion last year. Sales of assets, however, were primarily responsi ble for last year's sales decline. Af ter a disastrous year in 1982, when sales fell 18% and the company lost $34 million, income improved dra matically. New records were set in 1983 and 1984. Last year, the com pany's return on equity was at the top of the industry, Drew says. That record, he says, doesn't fit the perception of a commodities business. The commodity chemical industry is accustomed to cycles. Historically, companies cut costs in the down cycle and add them back during the up cycle. They inevita bly would expand capacity, usually just in time for the next down cy cle, says Drew. In 1982, everyone in the chemi cal industry cut costs. Celanese was no exception. Its head count of sala ried personnel dropped 17%. How ever, Drew thinks there was a fun damental difference at Celanese. "We assumed that the business en vironment had changed fundamen tally from inflation to disinflation," he says. There would be no price increases to cover rising costs for the next several years. As a result, Celanese laid out a strategy to reach its goal—a bal anced company with returns at the top of its industry. There were sev eral key elements of its strategy, says Drew. The first concerned costs. If margins can't be maintained or
improved by raising prices, fixed costs must be reduced. The reduc tion must be permanent and the process must be continuous, Drew emphasizes. Celanese's salaried staff members and its sales and adminis trative costs have dropped each year since the 17% trimming in 1982. That process will continue, says Drew. More important, he adds, is that the company is "managing" its at trition. It's a mistake, he says, to think that all a company must do is cut personnel. Unless management changes the way it does business, it will be out of business or have to add the costs back in. The solution, Drew says, lies in improving pro ductivity and efficiency. Responding to requests from a key fiber product customer, Celanese in itiated a quality management pro cess based on consultant Philip Crosby's "Quality is Free" concept in 1981. The goal: Produce a prod uct that meets specifications the first time through. Impact on the bot tom line, he says, has been signifi cant. Compared to 1981, Celanese saved $70 million in operating in come last year. That's 30% of 1985's total operating income—all direct ly attributable to the quality con trol program. Now Celanese is spreading quali ty management from manufactur ing to all functions. It has set quali ty "culture" goals for the entire com-
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May 19, 1986C&EN
party. Management is asking employees how it can help employees do a better job. In 1983, Celanese also began to decentralize. Drew now has four core units—commodity chemicals, textile fibers, industrial fibers, and smoking p r o d u c t s — r e p o r t i n g to him. Dick Clarke, another group vice president, handles the specialty growth areas, including specialty chemicals, engineering resins, new business development, and technology. In the old chemical division structure, existing product lines were 95% commodities, and 80% of the R&D was directed toward new products. Management found it difficult to focus on the different objectives, Drew says. Last year, commodity chemical product lines and their direct R&D support were placed in the chemical commodity unit. Specialties, such as multifunctional monomers, and new product R&D were put on the specialty side—in t h e specialty chemical and technology business units. Now, Drew says, the focus is uniform throughout each business unit. And, he adds, contrary to what many think, decentralization reduces costs by eliminating management layers and shortening response time. Meanwhile, all functional a r e a s production, technical, and marketing—are focused on common goals. R&D also has undergone changes. In 1981, the company spent $104 million on R&D, with about 70% of that supporting existing core product lines. At its central research facility in Summit, N.J., only 34% of Celanese's R&D effort was devoted to new business areas. Today, the company spends the same amount on R&D. But 60% goes toward new technology and new business areas that are based on sophisticated polymers and process technology. At Summit now, 88% of the effort is new-business oriented. Celanese's technical objectives are closely linked with its business objectives, Drew says. Its approach to diversification is to take its strength in polymer technology and leverage it downstream to maximize value added. Celanese has done this through
minority equity positions, joint ventures, and technical coalitions. For instance, the company has an equity stake in Osmonics and Endrotronics, which use Celanese's membrane technology in industrial and biomedical applications. It has a piece of Codenol and Interactive Radiation (InRad), which use advanced material nonlinear optic technology in fiber optics, computers, and laser systems. Celanese also has a joint venture with Nova Pharmaceutical to develop a new biodegradable polymer for d r u g - d e l i v e r y systems. There are several others. Drew admits that this approach doesn't capture headlines the way that acquiring a "specialty company" does. However, he believes that the results five years from now will be more fruitful and achieved with significantly less risk. To help keep Celanese on a s o u n d technical course, the company has created the Celanese Scientific Advisory Board, made up of six scientists from academia and four inside members. The company isn't neglecting R&D for its core business. Now, however, the research is focused. About half the fiber products sold today were developed in the past five years. But to support growth opportunities and carry out company strategy over the long term, Drew thinks it is very important for a company to be financially strong. And Celanese has done a number of things to improve its balance sheet and its shareholders' value. It converted less-productive assets into cash— $174 million worth last year. The company sold off its seed group and some Brazilian assets. It's in the process of selling its water-solublepolymer and specialty resins units. Celanese also improved its balance sheet by recapturing $389 million (pretax) from excess pension funds. In 1984, it started repurchasing its stock. So far, it has bought 5 million shares—about 30% of those outstanding in 1983—at an average $95 per share. That not only demonstrates an interest in improving shareholder value, Drew says, but with the stock now in the $200 range, it has been an excellent investment. Π
