On the Road to Excellence:

1
On the Road to Excellence 1995 - Present
Take the Path to People Success
DOW Case
2
DOW Chemical Who Are They?
A diversified science-based Chemicals, Plastics
and agriculture-science company
Operational Excellence
Customer Focus

• Leveraging
• Technology
• - Integration
• Globality

3
The 6 Bubble Dow Change Management Model
For a major transformation, major change areas
have to be revisited (nothing is off limits).
In a cascading manner, implying a disciplined
approach to high performance organization design
and implementation.
Vision Direction, Values Strategies
Strategy Structures Enabling Systems
Work/Business Re-design Processes
Company Culture
Organization Structure
Information Technology Systems
Human Resource Systems
Bubble Re-design HPS/HPO/HPWS
4
DOWs Strategic Renewal Journey
Bubble Redesign Processes Phase 1
Downsizing/ Right-sizing
P r o d u c t i v i t y
Global Businesses
Year
92 94 96 97 98
99 00 02
5
DOWs Strategic Renewal Journey
Bubble Redesign Processes Phase 2
Learning Organization
Bubble Redesign Processes Phase 1
Customer Focus
P r o d u c t i v i t y
Downsizing/ Right-sizing
Global Business Model
Quality
Global Businesses
Year
92 94 96 97 98
99 00 02
6
Dows Global Business Model
Global Business Units (15 SBUs)

• Global Business Units
• At least 80 of our
• employees in 15 units
• Shared Services
• No more than 20 of
• our employees
• Corporate Expertise Centers
• As small as possible

Shared Services
Corporate Expertise Centers
7
Dows Global Business Model
15 Businesses
Increase Customer focus Leverage Integrati
on Productivity
80 20
Dow people and resources
Shared Services
Corporate Expertise Centers
8
DOWs Global Business Model Desired Outcomes

• Simple - Large businesses, small efficient and
• effective shared services, small Corporate
  Center
• Flat/Lean - Less bureaucratic, more empowerment.
• Structure
• Low Cost - Smallest possible infrastructure
• Clear - Roles and responsibilities totally
  clear.
• Accountability - Business accountability for
  results, function/
• geography for process improvements and
• standardization
• Flexibility - Business-by-business, right to say
  no.
• Speed - Decisions made and implemented rapidly.
• Learning - Leverage capabilities and work
  processes

9
High Performance Organizations and Their Results
Results from Transition
Point to 15 Years beyond
T Year to Company
Transition Point T
Year 15
Abbott 3.98 times the market 1974-1989 Circui
t City 18.50 times the market 1982-1997 Fannie
Mae 7.56 times the market 1984-1999 Gillette
7.39 times the market 1980-1995 Kimberly
Clark 3.42 times the market 1972-1987 Kroger
4.17 times the market 1973-1988 Nucor 5.16
times the market 1975-1990 Philip
Morris 7.06 times the market 1964-1979 Pitney
Bowes 7.16 times the market 1973-1988 Walgree
ns 7.34 times the market 1975-1990 Wells
Fargo 3.99 times the market 1983-1998
Ratio of cumulative stock returns relative to
the general stock market
Source J. Collins, Good to Great, Harper
Business, 2002, p. 7
10
The Differences in Organizations A Traditional
vs. High Performance Organization -1
Traditional Organization
Exemplar (HPS/HPO/HPWS) Organization

• Reacts to changes in the External Business
• Environment
• Undefined or strong organization culture
• Undefined/No leverage of core capabilities
• Local/Regional in Scope and Vision Direction
• Traditional/same-old business model
• Change from the top only
• Driven by the External Business Environment
• Low to average growth rate (5-10),
  profitability,
• stock price, 90-95 First Pass Prime

• Capabilities to predict changes in the
• External Business Environment
• Adaptive organization Culture
• Leverages Core Capabilities
• Global Scope and Vision Direction
• Re-acting and Changing Business Models
• Changes are Bottom-up and Top-down
• Driven by Internal Forces and Customers/
• Consumers/Markets (External Business
• Environment)
• High growth rate (15), profitability, stock
  price,
• 100 First Pass Prime

Source B.A. Macy, Successful Strategic Chance,
San Francisco, CA Berrett-Koehler Publishers
(forthcoming).
11
The Differences in Organizations A Traditional
vs. High Performance Organization -2
Traditional Organization
Exemplar (HPS/HPO/HPWS) Organization

• Best Place to Work!
• Shared leadership/Shared decision making
• Lean/Flat organization structure
• Multi-functional customer account teams
• Self-directed work teams at all levels
• Alliances/Partnerships with Customers/
• Joint Development Projects/Top to Top
• Relationships/Joint Business Reviews,
• Clear and Concise Vision Direction
• Broad Tasks

• Bad to OK place to work
• Leadership at the top
• Tall/Multi-tiered organization structures
• Selling Teams
• Work Teams/High Performance Team/
• Quality Improvement Teams
• Focused on the Customer (words only-
• No behaviors)
• Blue-sky Vision
• Narrow Jobs
• Functional employees

Source B.A. Macy, Successful Strategic Chance,
San Francisco, CA Berrett-Koehler Publishers
(forthcoming).
12
The Differences in Organizations A Traditional
vs. High Performance Organization -3
Traditional Organization
Exemplar (HPS/HPO/HPWS) Organization

• Low to Average Knowledge of
• - Customers
• - Consumers
• - Markets
• Incremental Improvement in Goals (KPIs)
• Limited access to information
• Inside the Firm Benchmark Best Practices
• (low emphasis on Learning)
• Traditional and narrow careers
• Power and Control lies in Upper Management
• Inspection of errors

• High Knowledge of
• - Customers
• - Consumers
• - Markets
• Step-wise improvement in goals (KPIs)
• Broad access to information
• Outside the Firm Benchmarking the Best
• Practices (high emphasis on Learning)
• Enriched and stimulating careers
• Empowered Structures, Systems and
• Processes (shared)
• Control of errors, bottlenecks and
• Variances at the source.

Source B.A. Macy, Successful Strategic Chance,
San Francisco, CA Berrett-Koehler Publishers
(forthcoming).
13
DOWs Business Accountability CEO of the
Business
October 1995
Today

• Profit and loss
• Business strategy
• Line function activity
• and resources

• Profit and loss
• Business strategies
• Customer management
• Drive productivity and
• resource use within
• business
• Contribution to Dow

14
DOWs Manufacturing Engineering Organization

• De-layered from 10-12 layers to 4-6 layers
• Aligned manufacturing leaders by global business
  units
• Redefined the roles of the site and the
  geographic leaders
• Developed empowered teams
• Created a Coach role to aid the transition to
  a de-layered
• and empowered work force

15
CEO
CEO
DOW Before
DOW After
Global VP Mfg.. Eng.
Global Business VPs
Global VP Mfg. Eng

Area VPs Mfg.. Eng.
Geographic Mfg. GMs
Geographic Eng. GMs
Business Mfg Leaders
Func/Geographic Mfg/Eng Leaders

DOWs Manufacturing Engineering Organization

Note Dotted Line later changed to solid
line reporting
16
Dows Global Business Model
15 Businesses
Increase Customer focus Leverage Integrati
on Productivity
80 20
Dow people and resources
Shared Services
Corporate Expertise Centers
17
DOWs Shared Services Agreement Process
Focus was on understanding of services,
cost flows, cost drivers, and unit costs
18
Work/Business Processes
DOWs Bubble Redesign Processes
19
DOWs Bubble Redesign Processes

• Global Bubble Processes
• Benchmark best practices (externally)
• Standardize best practices in Dow
• Clearly define roles and responsibilities
• Identify needed skills and capabilities
• Describe how to best perform a task
• Provide the boundaries for empowered teams
• Results
• - Best in class performance
• - Top Quartile

20
DOWs Implementation of Bubble Re-design
Processes Eight Processes
Manage Information
Record Report Financial Info
Lead People
Develop Commercialize Technology
Produce Product
Integrated Supply Chain
Integrated Demand Chain-Market/ Sell
Plan Allocate Resources
Push
Global Business Units
21
DOWs Customers
Global Business Unit
Pull
Global Work/Business Re-design Process
Technology Centers
22
DOWs Human Resource Systems
Past
Present

• Many job descriptions
• Multiple compensation
• levels
• Multiple job levels
• Many job titles
• Limited ability for
• employee to find
• another job

• Eight global core
• competencies
• Broad band compensation
• Four job families with
• four developmental
• stages
• Few job titles
• Global job announcement
• system open to all

23
DOWs Learnings and Observations

• Significant learning occurred between business
  and functions
• and within the various business teams.
• Businesses appreciative of business oriented
  packages. Want
• more information, more frequently.
• Significant learning occurred regarding units of
  use and
• consumption patterns within the businesses.
• Cost flows and cost transparency (what service
  was delivered
• where by whom and at whose request) was a
  major issue.

24
DOWs Re-occurring Themes - 1

• Most consistent cost saving message
• Use the standard work/business re-design
  processes
• that make a high performance organization
• They were worth millions of dollars
• Clarity and traceability of costs
• Business rules around joint ventures require
  clarity
• Streamline inter-company cost transfer mechanism
• Joint Ventures
• Crossing country borders
• Subsidiaries

25
DOWs Re-occurring Themes - 2

• Communicate content and cost of governance
• items for businesses.
• Clarity on what is required, non-discretionary.
• Improved integration between the service
  agreement
• and budget process, and role of functions in
  
• supplying data.
• How do functional initiatives get approved for
• service providers in the future? Model for
  decision
• making?
• Keep it fair. Dont cut any special deals.

26
DOW Was It Worth It?
Word of mouth is a resounding YES!
Participants said.. This is data we have never
had before to manage our business. These
sessions have been very valuable for learning how
costs were moved in the organization. I
never realized there was so much involved with
some of these services. I never thought
about reporting this information on a business
basis before.
27
DOWs Business Success Model
Global Business (Small Company)
Corp. Expertise Centers/ Shared Services (Large
Company)
What
Leverage
People
Who
Effectiveness
8 Bubble Redesign Processes
Who Efficiency
Geography
Who
Implementation
WorkBusiness Redesign HPO/HPS/HPWS
28
Company Culture
Cultural Change Learning, Doing, Measuring