[return to blog main page]

Severing the Tie that Binds
by Andy
December 3, 2013

An article in yesterday’s WSJ.com about Dow Chemicals caught my eye (http://on.wsj.com/1bGt1ZJ).  Founded over 115 years ago, Dow Chemicals is a $50 Billion company built on developing and commercializing chemicals critical to today’s world.  Look around.  More than likely, Dow chemicals are in the wall paint, in that plastic soda bottle, coating the windows, in the urethane protecting the wood floors, and more.  Dow’s chemicals are everywhere.  So what caught my eye was that according to Doug Cameron at WSJ.com, Dow is considering an extreme makeover — and dropping the word ‘chemicals’ from its formal name.

And I see the point.  Over the last decade or two, low-cost competitors have duplicated Dow’s earlier innovations and they are now profiting handsomely from them.  Products like epoxy resins, chlorine, foam insulation and plastics are not innovative anymore and can be found cheaper elsewhere.  So rather than focus on mundane chemicals (product), Andrew Liveris (CEO) wants to focus on magical chemistry (innovation).  That means selling off those businesses where margins are thin, and likely to remain that way.  It also means focusing on products that have yet to be developed, let alone marketed.

That’s a tough balance because revenues are based on in-market sales while profits are based on the value the market bestows upon them.  Innovation, on the other hand, is magic — and it’s hard to quantify magic on the balance sheet.  But Apple does it quite well.  As do Google, Facebook and a whole host of other innovative companies.

This is where Mr. Liveris’ insight is so intriguing.  He’s realized that once chemistry becomes a chemical and open to foreign competition, the luster of this new creation starts to tarnish – along with the profit margins.  In order to maintain growth, profitability, and competitive immunity, Dow must strongly consider walking away from what got it there, and to never go back.

Don’t be afraid to break the tether to your past.  It just might be an anchor.

Leave a Reply