Imperial Chemical Industries

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• Imperial Chemical Industries
• SPECIALISATION ON A ROAD TO NOWHERE?

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Agenda

• 1. History Company Profile Andreas
• 2. Strategic and organisational analysis
• Gabe Hendrik
• 3. Conclusions Recommendation Florian

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• Imperial Chemical Industries
• Part I
• HISTORY COMPANY PROFILE

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Company Profile History
History Company Profile

• 1926 ICI founded
• 1930s Cartel situation ICI had monopoly in
  the Commonwealth
• Post WW 2 Slow growth, uncompetitive
• 1980s Higher degree of specialization
• Successful transformation

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History
History Company Profile

• 1993 Demerger
• Spin-off of Zeneca A success
• 1990s Divestments
• Insufficient scale Uncompetitive
• 1997 Acquisition of Unilever businesses
• 1998 Plummeting share price

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4 Business units
History Company Profile

• National Starch
• Starch, adhesives and synthetic polymers
• Quest
• Food flavours
• Performance Specialities
• Industrial and personal care ingredients
• ICI Paints
• Paints and coating

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Competitors
History Company Profile

• Global players
• Dupont, Dow Chemicals, Rhodia, DSM, Clariant,
  Ciba Specialty chemicals, BASF, Bayer, Monsanto..
• Specialty players
• National Starch HB Fuller, RohmHaas,
• Quest International flavours, Givaudan,
• ICI Paints Sherwin Williams, Akzo Nobel

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Customers
History Company Profile

• ICI Paints
• Retail customers, beverage and food
  manufacturers.
• Specialty products
• Other manufacturers in food, perfume, personal
  care, lubricants and paper sectors

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Summary (1)
History Company Profile

• Shareholder Value destruction
• With exception of the demerger we have been
  destroying shareholder value every year since
  1973 Miller Smith, chairman, 1996
• Stock price
• From a high of 14, the stock now trades at
  around 2
• See Chart

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Summary (2)
History Company Profile

• Still insufficient returns
• Earnings lt Cost of capital
• Unclear whether there is synergy between the 4
  business units

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Summary (3)
History Company Profile

• Move from commodities to specialty products close
  to completion
• ICI has always prospered by reinventing itself
  to move with the times, and the company in 2002
  is far removed from its old image, transformed
  into one of the world's leading specialty
  products and paints manufacturers
• ICI Website, September 2002

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• Imperial Chemical Industries
• Part II
• STRATEGIC AND ORGANISATIONAL ANALYSIS

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Does ICI have the strategic and organisational
resources to fulfil its ambition?
Analysis
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Analysis
Before 1997, ICI was a commodity player
Market
Products
After 1997, ICI as a specialty player
Market
Problem
Solution
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ICIs ambition
Analysis

• Low margin commodities
• High margin customised solutions
• Cost leadership
• Product differentiation
• Products
• Solution

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Analysis

• What resources does ICI need to fulfil its
  ambition?
• Are these conditions fulfilled?

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Strategic resources needed
Analysis

• RD excellence
• Knowledge management
• Customer relationship management

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RD excellence
Analysis

• Before RD aiming at production efficiency
• Target Product innovation as the key to
  differentiation
• Advantage Higher margins on new products

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Knowledge management
Analysis

• Before small product range, little interaction a
  low complexity
• Target real-time knowledge network, sharing
  knowledge to design solution
• Advantages efficient use of knowledge capital
  responding to complex client needs, greater speed
  to market

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Customer relationship management
Analysis

• Before product delivery without services, price
  focused relationship
• Target individualised solutions designed in
  collaboration with each client, service focused
  relationship
• Advantages coordinated marketing activity,
  customer focus

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Assessment
Analysis
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Analysis
Organisational resources needed

• Bottom-up structure
• Flat hierarchy
• Flexibility

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Bottom-up structure
Analysis

• Before top-down decision making
• Target market-based view, delegation of
  authority
• Advantage Based on customers instead of products

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Analysis
Top-down approach
Market
Products
e.g. paint
Bottom-up approach
Market
Problem
e.g. expiry date
Solution
e.g. preservatives
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Flat hierarchy
Analysis

• Before many hierarchical layers
• Target reduce number of hierarchical layers
  increase span of control
• Advantages Innovation-fostering, larger
  commitment, knowledge management

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Flexibility
Analysis

• Before Planned bulk company
• Target Be first mover, respond quickly to market
  changes
• Advantage Higher margins, dynamic market entry
  barriers

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Assessment
Analysis
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• Imperial Chemical Industries
• Part III
• CONCLUSIONS AND RECOMMANDATION

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Conclusions

• RD and knowledge management upside potential
  but no synergies possible between units.
• To be improved
• CRM
• Flat hierarchy
• Flexibility
• Bottom-up structure

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Assessment

• Criterion for owning businesses
• Be better at creating value from that business
  than everybody else
• Is that the case for ICI and its business units?

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Recommendations

• No obvious synergies between business units
• No reason why these four units should keep
  together

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Recommendations

• No apparent parenting advantage
• It does not seem like the ICI management is best
  at leading these four units.
• No reason for ICI to own this portfolio

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What to do

• Option 1
• SELL the specialty chemicals and return to core
  business
• Option 2
• DISBAND the company and give back money to the
  shareholders

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What to do

• Option 3 sell the paint business and reinforce
  synergies between the specialty chemicals
• improve knowledge management network
• develop CRM for the whole firm
• position as solution provider (IBM model?)
• reduce number of hierarchical layers
• hire new managers (from IBM?)