Internal entrepreneurship at the Dow Chemical Company

Dow Chemical Company

Description
Dow Chemical is a multi-national chemical manufacturing company, specifically serving various consumer
markets with innovative chemicals and plastics products. With net profit margins dropping over a period
of time, the firm had prioritized growth initiatives in the early 2000s. The emergence of the internet had
empowered start-ups to disrupt the chemical manufacturing industry, which represented a significant
threat to the firm. Dow Chemicals leadership team responded by formally educating themselves on
emerging e-commerce business models, which paved the way for a new growth venture, e-epoxy.com.
The initiative was pushed forward by Ian Telford, who despite modest resources takes the necessary
actions to garner support and coordinate resources internally towards implementation.
Evaluation
EP&I Division: Epoxy was a high margin business for Dow Chemical, but required significant capital for
production. Additionally, the epoxy industry was cyclical and capacity utilization was an issue. 80% of the
revenue was produced by the firms major customers (top 20%). However, the cost of servicing these
clients was high as well, as they required dedicated support from account executives. The mid-level
customers were supported via EP&Is call center, which was more cost-effective. However, an
opportunity existed to capture market share among small and spot market customers, unaddressed
segments which had a lower cost to serve. The e-epoxy.com venture represented a good opportunity for
growth, in line with Dows corporate strategy.
E-epoxy.com Venture: The initial reaction from leadership to the venture proposal was not positive.
There were several challenges to the new business model. First, publishing prices online was counter to
the traditional pricing policies in the epoxy business. There was concern that the practice of negotiating
prices as well as geographic-based pricing would be compromised by the price transparency that the
online channel offered. Telford effectively countered this risk through creative approaches. An example
was by displaying higher prices on the portal and offering promotional discount codes via targeted email
marketing. Additionally, by establishing and enforcing separate business rules for the online channel, he
ensured that the traditional business channels were preserved and unaffected.
The Internal Entrepreneur: Telford, a sales director at Dow Chemical, was by nature a bit of a maverick.
Telford exhibited several personal characteristics that made him an effective internal entrepreneur. First,
his ability to sell his vision and obtain approvals was paramount to championing the venture. His
enthusiasm and charisma was tangible, allowing him to win over stakeholders who were resistant to
change. He effectively won over the corporate IS department by working in strict accordance with their
rules, offering recognition for their deliverables, and giving them a sense of ownership in the venture.
Telford also successfully navigated through the changes in leadership to keep the e-epoxy project
prioritized. Second, Telford also did not appear to have a fear of failure. He proceeded with leading the
initiative, fully aware that if the online channel venture failed, his career and reputation would take a
serious hit. His conviction and willingness to take the risk was needed to get others to follow. Third,
Telford was able to recruit and motivate a team towards his cause. He carefully chose team members
who had the both the risk tolerance and affinity for a new, exciting challenge. Telford took full
accountability for the project and even went as far as to set up mitigation plans for his team members in
case of failure. Telfords leadership and execution was critical to the ventures success.
Corporate Entrepreneurship Strategy: Through the venture, Dow Chemical employed a corporate
entrepreneurship strategy to attempt to offset declining net profit margins. E-epoxy.com was one of
several growth initiatives that were launched with the firms future success in mind. It is clear that senior
management is still in the process of establishing an entrepreneurial strategic vision. There were many
valuable lessons learned from the e-epoxy.com venture. This knowledge should help guide decisions with
regards to resources, processes, and the organizational structure required to better augment the firms CE
strategy.
Recommendations
Continue to promote a pro-entrepreneurship organizational architecture: Telford was successful in
recruiting the right folks to join his venture. However, he had to find those who were willing to get on
board, and presumably many were not. As the firm continues to implements a pro-entrepreneurship
organizational architecture, it will also need to re-define roles and the reporting structure to enable
an environment more conducive to entrepreneurial activities. The corporate culture will also need to
evolve to be more supportive of new ventures with corporate leadership driving the growth objective.
Provide better incentives for initiating new ventures: Without incentives, it will be difficult to enlist
resources to join an internal venture. Telford was extraordinary, in having unwavering conviction and
a willingness to risk his career in pursuit of an internal entrepreneurial venture. However, most team
members are unlikely to have similar risk thresholds. Proper incentives will be required in order to
motivate and empower teams to sustain the CE strategy. These should include promotions, bonuses
and other forms of recognition.
Take a proactive approach to internal entrepreneurship: Two external shocks served as the catalysts
for Dow Chemicals foray into corporate entrepreneurship: the steady decline in profit margins and
the emergence of the start-ups which threatened the old-school business model. Fortunately, the
e-commerce wave was still in its infancy. Still, a proactive approach is highly preferable in fast
changing business environments. Dow Chemical, as the largest chemical manufacturer in the world,
was uniquely positioned to set the trend, rather than react to it. In the future, they should look for
first-mover type opportunities and capitalize on them.
Look for opportunities to leverage the e-business model across other product lines: Dow Chemicals
lessons learned in the e-commerce space should be communicated across other lines of business. As
e-commerce is beginning to boom, the competency acquired in the e-epoxy.com rollout can be
leveraged for other products. The success of e-epoxy.com can also be used to inspire other teams
across the organization to look towards new ventures that align with the firms CE strategy.