A Speech by Gary Anderson, Chairman,
President and CEO, Dow Corning Corporation
The Hong Kong Chamber of Commerce Luncheon
April 29, 2002
Finding
the Right Equation: Responding to Customers' Needs in a Dynamic Business Environment
Good afternoon.
I would like to begin by thanking the Hong Kong General Chamber of Commerce for inviting
me to share my thoughts and experiences with you today. It is always a great pleasure for
me to come to Hong Kong and meet business leaders who have contributed so much to the
dynamism of this place's economy and business. Dow Corning first came to Hong Kong nearly 30 years ago and we intend to
stay here - like many of you - as
we further develop business opportunities in the Pearl River Delta and the rest of China.
Considering
what to share with you, I marveled over the dramatic changes businesses in Hong Kong,
China, and throughout the region have faced in just the past few years. Who would have
thought, just two years ago, that we would find ourselves dealing with the convergence of
so many different business force fields?
Challenging
Business Environment
We are facing
one of the most challenging business environments in recent memory -- an economic climate
fraught with pressure points we wouldn't have dreamed of a few years back. We are
operating amidst a global recession and intense competition among multinationals and local
suppliers.
As a result,
customers have become more selective and more demanding. They are looking for suppliers to
do more that offer products and services - they want customized solutions!
We're also in a
global economic cycle hit by global over-supply. Companies are churning out far more
products than markets can consume. This has put customers in a dominant negotiating
position.
Both helping
and complicating the business situation, are all the technological advancements now
available. On one hand, they have allowed us to introduce innovative new products. But the
speed of technological change also presents challenges. Michael Hammer, in his new book
"What Every Business Must Do to Dominate the Decade," points out that technology is evolving so quickly that it has
truncated product life cycles. Products can be copied or even become obsolete in only a
matter of months instead of years or decades. The result is that innovative products
quickly become commodities, making product differentiation extremely difficult.
In response
businesses have had to trim budgets. Recent investments in information technology and work
process redesign have enabled businesses to do more with fewer people, thus lowering our
cost bases.
At the same
time that companies are reducing costs, they need to make significant investments in
R&D to address customers’ quest
for innovations that offer a competitive edge. Dow Corning has seized upon this, investing
six percent of our annual revenue in R&D–the highest in our industry.
Customer
Segments
To fully
understand the changes our company has made to succeed in this business climate, let me
briefly describe how we used to work with customers. Since Dow Corning’s founding, we traditionally have packaged
the delivery of products with high-end customer services. For the price of the product,
all customers received our expertise and services. This has been appreciated by many
customers who want the latest innovations and market-making new products.
So why change a
good thing?
By listening to
our customers, we learned that their situations and challenges varied considerably,
largely depending on where their products are in their life cycles. Some were interested
in innovating and creating new technologies and markets. Others wanted reliable, proven
solutions. And yet another segment of customers were looking to gain competitive
positioning by cutting costs.
Those with
mature products often have their own infrastructures and scientists and so don't need all
the services our company offered. For them, price was the only important factor.
That brings me
to Dow Corning today. Let me describe for you how we have addressed these varying customer
needs and the environmental challenges I just mentioned. It has meant a dramatic change in
the way we serve and work with customers. At the end, I will be happy to answer your
questions.
It begins with
being clear about who we are and what we do. Dow Corning's business is based on silicon
science. For those of you who may not know, silicon is a highly abundant natural material
that's found in everyday things like sand, clay and granite.
Using silicon,
our scientists developed a new material that blends the best features of glass and
plastics. It combines the temperature and chemical resistance of glass, but offers the
versatility of plastics. Our silicone products have unique surface properties, providing
stability at high temperatures and resistance to damage from sunlight, moisture, aging,
and certain chemicals.
Because these
features are needed in a wide range of products, our business has expanded rapidly. Today,
we have a global operation that produces a broad array of products for every major
industry.
Over the years,
our scientists have created products for customers that enhance the performance of
thousands of applications. They…
Dow Corning
products have changed the landscape of major cities in the region by helping architects
and construction engineers realize their spectacular ideas for new building design and
construction - like the Hong Kong Convention and Exhibition Center, the Cheung Kong
Building, Shanghai Pearl TV Tower and Beijing’s Oriental Plaza. Our scientists invented the anti-bacterial
technology to keep clothing fresh and sanitary. We also supply to leading microelectronics
companies in Asia to help them produce smaller chips and maintain a strong competitive
advantage against their competition in other regions.
We've helped
design engineers develop 2-in-1 shampoos, which are increasingly popular in China. Our
products are also used in mobile phone chips and dialing pads. In fact, the applications
for our products in the Chinese market are extensive.
Knowing that
the World Cup is on most everyone's mind, let me just share that Dow Corning products
helped create the dramatic sports facilities that will host the matches. We were also
pleased to have our products used in the facilities of the Sydney Olympics two years ago.
IT
Infrastructure Investments
Let's now turn
to the challenges we all face and the approach my company is taking to address them.
Information
technology is an important enabler for reducing costs and facilitating change. So we began
by upgrading our back-end information technology systems. We invested more than $100
million in a SAP-based global IT platform.
This investment
allowed us to create one of the most sophisticated and flexible technology infrastructures
in our industry. It provided an opportunity to consolidate our operations and introduce a
higher degree of automation.
The SAP
installation also provided the impetus for a complete redesign and optimization of our
business processes and workflows. SAP and standardized workstations have helped us
strengthen internal collaboration and communications so we can be more efficient, flexible
and effective. Ultimately, our investment in SAP helped us reduce production costs and
become increasingly nimble in adapting to changing customer needs.
The result has
been a significant cost savings that we can pass along to our customers. It has allowed us
to create the largest and least expensive manufacturing capacity in our industry.
These
efficiencies and economies of scale give us unparalleled cost advantages in the production
of silicon-based materials. This, combined with the fact that we have the largest global
capacity in the industry, has given Dow Corning a competitive edge. We are the only
company that can assure supply to customers wherever they're located around the world.
This investment
also allows us to instantaneously be aware of shifting customer needs and make rapid
adjustments to address evolving customer demand.
But cost and
capacity advantages are only two pieces in the puzzle. We realized that we needed to
address them in a more customized manner.
Customer
Segmentation
Our next step
was to examine the marketplace in a highly strategic way. This involved ongoing research
and really listening to customers' varying needs.
Our traditional
way of doing business was helpful to a certain segment of customers but it needed to be
more flexible. Customers told us they wanted to define what they needed from Dow corning
and decide what they were willing to pay for.
Where
traditionally they bought product or services, then sorted things out for themselves,
today they want suppliers who listen and understand all of their needs and can solve their
problems or help them seize an opportunity. This often requires providing access to the
right people, expertise and a variety of solutions.
Clearly, a more
tailored approach would be needed to address individual customer needs. We also recognized
that their product life cycles provided the key to how we should customize our offerings.
And it was clear that customers wanted to select from a wide range of options.
Based on
this feedback, we conducted a sophisticated customer segmentation analysis. This was
totally different from traditional segments, such as those based on country and industry.
Instead, we used our data to move customers into needs-based segments, where they are
grouped by common requirements for support, product innovation, and pricing parameters.
The approach
gave us a solid foundation on which we could transform how we serve and work with
customers. We built on this base by designing four distinct service offerings to match
sets of common customer needs. Each was tailored to provide exactly what a certain
segment of customers need and willing to pay for.
As a next step,
we strategically aligned our capabilities. We tailored service offerings, product
technology, and materials accordingly, and we introduced a continuum of solutions to give
customers a competitive advantage throughout the life of their businesses and their
product life cycles. Some solutions don't involve our products at all.
Our
Transformation
The result? We
have customized our approach, based on what each customer wants, and have transformed our
organization from a traditional materials supplier to a materials, services and solutions
company that can address customers' needs exactly as they want them met.
We have moved
from being an established industrial company with one brand and one way of doing things to
a company that offers multiple choices.
Our corporate
strategy has become providing customers exactly what they want. Our new offerings are
spurring the growth and profitability of their businesses by assessing and delivering
exactly what each values most. Some want highly customized and involve science-based
innovations; others simply need commodity products at the lowest base price.
Xiameter
Let me tell you
about the latter - offering
commodity products at the lowest base price.
With the global
economic slowdown and heightened competition I mentioned earlier, some customers have
expressed a willingness to forgo some technical and support services they really don’t need to save costs. Because of the
maturity of their companies and products, they can utilize our materials without
additional assistance. They don’t
need the services and technology expertise that was traditionally included in the product
price. They understandably want the option to select, and pay for only the services they
need - like on-time shipments and reliability.
This options,
then, gives them lowest possible prices.
Our new
web-enabled business is directly addresses the changing needs of our customers. In fact,
it's an entirely new business model, which we have named Xiameter.
Xiameter is
more than a simple e-commerce model, it leverages our ar investment in a world-class
back-office and our competitive global supply capacity. We believe it will bring historic
change to the industry and advantages to Dow Corning to compete in the broader, $200
billion performance enhancing material market.
Xiameter is
based on straightforward on a business model - high-volume purchases so that customers can
maximize their benefits from their supplier.
Another
innovation: customers can view and our benchmark prices on the Xiameter web site for
easily comparison with competitors' pricing schedules.
Introduced last
month, Xiameter is fully operational in 52 countries around the world including China,
Korea and several other Asian countries.
Aligning
support within the company
All the changes
I have mentioned have required the focused support from employees within the organization.
This was essential to ensure that all aspects of our business connect to our central
strategy.
We realized
that we had to shift the cultural attitudes of our employees so that everyone understood
their important roles in delivering exactly what customers want. We have addressed through
internal communications and aining programs.
Using
information technology to strengthen service
Outside of
Xiameter, IT remains an important part of our strategy and offerings to our customers.
We've made some quite substantial enhancement to our corporate website, re-launched early
this month, around customers' needs
and adding new services to address stated preference.
We have also
created an extranet web site for channel partners and key customers that allows them to
collaborate, share data, and receive counsel and support from their Dow Corning partners
online.
Keys to
success
So what have we
learned so far? First is the need to continuously listen to customers. Then the importance
of assessing how to align capacity, services and people to meet customers needs -- the
needs that are most important to them. If your company now provides only products,
consider what services and solutions you can offer to more fully address customers' needs, problems and opportunities. This will
let you strengthen and expand your relationship with customers.
Consider how to
leverage information technology and innovation as a key point of differentiation.
Communicate your business strategy that all employees can believe in and ensure they know
how their role supports it. And have the courage to embrace change.
For Dow
Corning, the answer was simple - give
customers what they want, build on the strengths of our heritage, our people, and our
brand. And do it in a unique and differentiating way.
Behind it all
is our commitment to the same ideals to which we committed ourselves from the beginning - harnessing the power of silicon science to
support customers' businesses.
China
We believe the
innovations I have just described will help speed the growth of our customers' businesses, particularly in China's new WTO
environment.
China has
become a key base for our Asian and global business operations. It is also one of our most
important product markets, so we are partnering with Chinese businesses and government to
speed development here.
By becoming
involved in local business organizations and working with the Chinese scientific
community, we learn what businesses and institutions in China need from Dow Corning. As a
result, we can work together to invent new product applications and provide service
offerings designed specifically for this market.
That said, Hong
Kong remains an important service center for our Asia strategy, supporting robust business
expansion in the region. Hong Kong has the talent pool and service infrastructure
essential to our growth. Like Dow Corning, Hong Kong is adjusting to the changing needs of
its customers for high-value service and intensified competition. The process may call for
some painful transformation and re-positioning. Perhaps, like our company, there is a need
to refocus on what made this city a great economic center. And look to its heritage, as a
bridge to China, to define a new role for the future.
Thank you for
this opportunity to address you today.
I'd be happy to
answer any questions you might have.
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