BUSINESS
Customer Awareness Becomes Byword At Rapidly Internationalizing ICI • After whirlwind changes during past three years, ICI's top executive sees strength in diversity among management, locales Patricia L. Layman, C&EN London
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fhere'll be some changes made"— that could be the theme song of Britain's chemicals giant ICI. Over the past three years, it has split itself in two, it has embarked on a rigorous program of restructuring, and it has appointed someone as its new chief executive officer who is not only from outside the company but from outside the classic chemical industry as well. After a year on the job, the CEO, Charles Miller Smith—formerly a senior executive at consumer goods producer Unilever—is discernibly changing the emphasis within the company. ICI is developing a more customer-conscious, market-driven attitude than was evident in the past. And this bastion of British empire—its full legal name is Imperial Chemical Industries—is becoming noticeably more global in its sales, in its assets and operations, and, increasingly, in its people. While still a director of Unilever, Miller Smith joined the ICI board in 1993 as a nonexecutive director. He had joined the Anglo-Dutch marketing giant Unilever in 1963 as a commercial trainee after graduating with a bachelor's degree in medieval and modern history from St. Andrews, in Scotland. Although in 1993 he was responsible for foods in the AsiaPacific region and for ice cream globally, he had also served for eight years with Unilever's specialty chemicals group, including as chief executive of the flavors and fragrances unit PPF International and Quest International, as it later was renamed. 14
JUNE 3,1996 C&EN
self into ICI and Zeneca, he points out, ICI has become a much more international business—if for no other reason than "just the march of economic forces." In addition to a group of businesses primarily concentrated in specific locations— such as Australia, India, and Western Europe—ICI has another set of businesses that account for 60 to 70% of its international dealings. Those businesses, says Miller Smith, "we will drive hard." "Consequently," he adds, "10 years from now, ICI will be much more international than it is today. Just the growth of the businesses will drive this." That change has managerial ramifications, as Miller Smith: efficiency is central goal well, producing a growIn 1994, he joined ICI full-time as ing diversity of managers and locations CEO-designate, taking over in April for business headquarters. He cites, for 1995 from Sir Ronald Hampel, who example, the company's polyester film business, directed from its Wilmington, moved to chairman of the company. Miller Smith, 56, finished his first Del., office and run by an American year with a communications blitz, in- manager. Similarly, he says: "We will run our cluding a television talk-in that he hosted, answering questions from company purified terephthalic acid business out sites worldwide. And last month, he of Hong Kong. It makes logical sense: met with C&EN, comfortably clad in That part of the polyester chain is being the navy cardigan that is his signature, influenced by that region." in his remarkably unostentatious office, And the company is working to ento explain his vision for ICI over the rich the diversity in its managerial levnext decade. els. According to Miller Smith, "In One thing has not changed, he says: Asia, all our major entities are man"ICI is a chemical company—or cer- aged by Asians or Australians." A tainly, a science-based company—yes- growing diversity in structure will be terday, today, and tomorrow. It is a paralleled by a growing diversity in the business that draws on science and ex- people running the businesses, he sugploits science and technology in the gests, predicting that eventually one marketplace. There will be no funda- will run into a wide variety of people at ICI's London headquarters. mental change to that thrust." For example, the company has stated However, the geographic areas in which the company exploits its science that it intends to hire outsiders over the are changing. Since the company split it- next 18 months to fill between 30 and
position and which it intends to "defend robustly," as Miller Development, technical service Smith puts it. These are titanimake up 60% of Id's R&D staff um dioxide; purified terephthalic acid (PTA); and fluorocarStrategic research Technical 5% bon 134a, which ICI markets service Applied 30% research under the name Klea, as a sub10% stitute for chlorofluorocarbon refrigerants. ICI's operational structure reflects a recent reorganization forming new international businesses for polyester and perforProcess mance chemicals. These two new start-up 25% businesses report directly to the Product Process ICI executive committee, as do development development 20% the other operating groups of 10% chemicals and plastics, titanium 8 1995 total = 4,000 employees dioxide, acrylics, urethanes, a Research and technology as well as engineering and manu paints, and explosives. facturing technologies. ICI's regional businesses are a quirk of company evolution, Mil40 of ICFs top jobs, roughly a tenth of ler Smith says. "Geography had pushed the management slots planned by the those businesses away—for example, just end of 1997. Some slots will be opened the sheer time difference" between the by retirement, some by executives U.K. and, say, India or Australia. moving outside the company. But a re"This is an issue that must constantly spectable proportion of the new jobs be tested," he accedes. 'Two-thirds of will be created by the company's ex- our businesses go across the world, and pansion overseas in the Asia-Pacific re- they have regional operations. One-third gion and the Americas. are regional, and report in as separate "Neither of those two events will entities. We could shake the kaleidohappen overnight/' he says. "But we scope and allocate each [regional busimust be clear now. It is absolutely es- ness] to one of the big international busisential for the U.K. that we become a nesses, but we continue to see a benefit strong international company reaching with the national perspectives." everywhere. The winning combination Rubber chemicals in India, for examfor this business in the 21st century will ple, is a national business, he notes. be the U.K. genius for innovation, the "To make it anything else wouldn't American focus on performance, and make sense. A similar situation exists the Asian passion for growth. If we can with soda ash in Pakistan. Here in Euput these into the melting pot, we will rope, we have interesting positions have a company without peer in the in petrochemicals and fertilizers. I industry/' wouldn't see building ethylene crackThe company has evolved to one ers around the world, but we make a with 13 international businesses, loose- lot of money running the largest crackly distributed for financial reporting er in Europe. There is some logic bepurposes into four divisions, and an- hind the structure." other group it classifies as "regional There had also been, he says, a recbusinesses." The four divisions are ognition that if operations in the farpaints, materials, explosives, and in- flung companies had been integrated dustrial chemicals. into the U.K. company, there might These 13 operating units include 10 have been a loss of focus in terms of businesses that can roughly be catego- distance, awareness of local conditions, rized as specialty—called intermediate and sensitivity to local cultures. and effect by ICI—chemicals, such as And that leads into marketing, a suburethanes, acrylics, surfactants and cata- ject about which he is both deadlysts, polyester intermediates, and serious and enthusiastic. film—as well as coatings and explosives. "You have to be aware of marketing," The other three businesses are basic he stresses. "Marketing is about customchemical operations in which the com- ers, and whether you are selling PTA, pany has a strong international market Ti0 2 , or decorative paints, a customer is
a customer is a customer. I don't care what you're selling: The customer and customer service are at the heart of success." Points such as service and awareness of price and of how small differences can affect a customer's profitability all encourage the applications focus that Miller Smith sees at the center of the downstream end of the industry, in particular. He cites three cases at ICI: • Its polyethylene terephthalate (PET) business, which uses a new technology that gives PET processors real advantages by reducing the expense of processing and processing equipment. That, in turn, he points out, "gives us a price premium compared with basic PET resins. Having that technology advantage helps the price premium." • Its urethanes business, in which the intricacy of the manufacturing process can be harnessed to suit the skill and applications of customer industries. • Its can coatings and refinishes businesses, which are true service businesses, he says, and depend on taking a complicated technology and making it so easy for a customer to apply that the customer would not want to go through the hassle of changing suppliers. "As people who are customers become more aware of their influence and power, the businesses that distinguish themselves will be those that think 'customer, customer, customer/ " Miller Smith says. "The business is not about building a new plant, it's about satisfying customers." But just as such a focus can benefit the customer, he suggests, it can benefit a supplier company, as well. For example, "You start thinking supply chain. And then efficiency. How do we organize ourselves most efficiently,
ICI at a glance Headquarters: London Sales: $15.9 billion in 1995 Net profits: $829 million in 1995 Employees: 63,800 Capital spending: $1.02 billion in 1995 R&D spending: $369 million in 1995 Major businesses: Paints and coatings, plastics, materials, explosives, and industrial and bulk chemicals JUNE 3,1996 C&EN 15
BUSINESS from the purchase of raw materials all the way through to the customer? It's not just a customer sales advantage, but an efficiency advantage. You get whole dollops of efficiency in that." And efficiency is particularly important for the company, which set a goal three years ago of making an average 20% return on net assets over the cycle. "The 20% return concentrates the mind," he says. "My predecessor created it, and I believe in it. It forces change. We cannot stand still—if you try to, the tide goes around you. The pace of change is now so rapid, everyone is grappling. I keep saying to people in our business that we must have more efficiency, more profitability; we must be more robust and deliver financial targets to have satisfied shareholders. That will give us a better platform for the future. "We will be ahead of change, not behind, however uncomfortable that may be." But then he adds that ICI learned that trick a long time ago. "The [splitting up of ICI] was ahead of change. In hindsight, it may seem obvious, but I'll bet at the time it wasn't obvious at all. If you drift with the tide, you'll be swept away." The company is on its way to that target return, but the task is a hard slog. At ICI's annual meeting in late April, Hampel noted, "Although our return on assets was over 18% last year, we are still short of the average of 20% through the cycle which I set as our target three years ago."
Industrial chemicals sector dominates ICI sales • . . , Explosives Regional y 0/ businesses3 ° 15% D
Industrial chemicals 40%
. . . with lion's share of sales outside U.K. base Rest of Europe 21%
Other 6%
Americas 27%
Paints 19% Materials 19%
Asia-Pacific 25%
1995 sales = $15.9 billion a Businesses with sales only in a single country or region.
As a boost toward that target, he pointed out, last July the company announced a new round of profit improvement initiatives designed to improve profits by $620 million by the end of 1997. 'These actions are on track/7 said Hampel, "and have been embedded in all our detailed business plans" throughout such basic business operations as purchasing, asset utilization, information technology, and manufacturing practices. Hampel confirmed the company's 1995 sales of $15.9 billion, up 12% over 1994. Compared on a like-for-like basis, sales were just over $10.85 billion at the time of the split-up, he said. And, with
1995 net profits of $829 million, up 185% from 1994, earnings per share were more than double the 1994 level. Moreover, he added, "In spite of the slowdown of growth toward the end of last year, and with uncertainty continuing into the beginning of 1996," ICFs first-quarter results were within 10% of the strong first three months of 1995. Sales were up 4% to $3.93 billion in first-quarter 1996; net income before exceptional items was $176 million, down 9%. Hampel's target of 20% return— enhancing the value of the company to shareholders—was made about the same time as the company split off its
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rfcelgene life sciences and specialties businesses into a new, wholly separate company, Zeneca. ICI began to explore the possibility of a split-up at about the same time as British conglomerate Hanson seemed to be taking an acquisitorial interest in ICI, in mid-1991. Typical Hanson strategy at the time involved acquiring large, dozy companies and dismembering them, selling off undesired businesses, and incorporating the desired bits into its own portfolio. Hanson acquired 2.8% of ICI "for investment purposes/' it insisted at the time. And although it never formally made a takeover bid, the purchase clearly "had a profound effect on the ICI board: The company was not too large to be immune from market forces. Shareholder value was something the board had to deliver or face the consequences," pointed out David Ingles, chemicals analyst at securities firm James Capel & Co., London, in a recent report on ICI. Whether the threat of a possible takeover spurred the split-off or whether the concept arose within ICI coincidentally, as ICI says, is probably irrelevant. At the end of February 1993, ICI announced it would split itself into two companies. Pharmaceuticals, agricultural chemicals and seeds, and specialties went into Zeneca, and the more classic chemical operations stayed with the "new ICI," as it was informally called for a while after the split. According to Ingles, the split had two important effects on the company. It created an even greater focus within the businesses and opened the individual businesses to closer scrutiny. "Underperforming businesses could no longer be shielded beneath the umbrella of the more broadly based group," he said. It also concentrated management, financial, and development resources on a smaller number of businesses sharing common features. Since then, ICI has pruned its portfolio, focusing on a few sectors in which it could have a strong global position. Among its major moves was the swap, in 1993, of its European nylon business for DuPont's U.S. acrylics business, a deal valued at up to $365 million. ICI deal sold its polypropylene business at Wilton, its petrochemical complex in northeast England, to Germany's BASF for $93 million. It sold its ethylene oxide derivatives unit at that site to
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