Dupont Bets Its Future On Megatrends
When Ellen Kullman became DuPont’s 19th chief executive in January 2009 and its chairman later that year, she immediately began championing what she calls “market-driven science.”
The idea is to use DuPont’s formidable research capabilities, along with its power to innovate, and to focus them on the needs of the world’s growth markets. By doing that, she is continuing the company’s evolution from a manufacturer of gunpowder, two centuries ago, to a chemical producer, over the last century, to something with a much larger portfolio of activities that now includes agriculture, nutrition, health, biotechnology, engineered materials, and many other business areas. In today’s DuPont, with just under $34 billion in revenue, the chemicals business accounts for only about 20 percent of revenue, well behind agriculture, the company’s largest segment.
Kullman has been pushing DuPont into new areas that more closely track with the big trends (and needs) of the world. The company’s recent $6 billion acquisition of Danisco, a Danish producer of nutrition and health-related products and enzymes, is based on the understanding that with a growing population, the market for nutritional products, food and health-related products will continue to grow. DuPont is also a formidable player in new and innovative markets like solar energy, enabling materials for electronic components, and enzymes that help turn crops, like switch grass, into energy.
All of these changes have at least one element in common. They are all built on focusing science on the needs of the earth’s growing population. To explain how she is making DuPont a more innovative, science-driven company, Kullman spoke with the Korn/Ferry partners Andy Talkington and Jim Aslaksen, and with the Briefings editor in chief, Joel Kurtzman, at DuPont’s corporate headquarters in Wilmington, Del. What follows is drawn from that conversation.
You recently gave a speech at the Detroit Economic Club in which you discussed the world’s megatrends — the big changes and challenges everyone faces. You tied those trends to your business. How does that link work?
Kullman: If a company needs to grow in order to satisfy shareholders and create returns, then you have to understand the trends that are facing the world and how they affect your business. Now, we don’t understand where the world’s actually going to end up, but there are a lot of things that are clear and one of them is that we have seven billion people in the world now and we expect nine billion by 2050. That means we’re going to have to feed two billion more people by 2050. These people are also going to want access to energy — for transportation, communication and their general way of living. They are also going to need to have water, which requires energy to purify and transport. We’re also going to have to protect people and the environment. Today, we don’t do these things very well, and if there are another couple of billion of us on the planet, we’ll have to do a better job than we are doing now. To me, these challenges represent huge opportunities for our company.
You’re talking about focusing DuPont’s resources around sustainability?
Kullman: When we first started talking about this, our employees said, Well, those big trends are all very interesting, but why are we talking about them? And I said, This is more than interesting because this is where we’re going to put our research-and-development dollars. These are the real needs the world has, and these needs will create opportunities for growth for our company. These are long-term and not cyclical or short-term changes. These changes involve billions of people. So, following the megatrends is about sustainability, but it is also about creating long-term growth. And, because we have the science that can help in each of those areas, if we’re successful, not only will we be helping to solve some of humanity’s most difficult issues, we will also be creating growth and returns for our shareholders.
What are the other megatrends you are looking at?
Kullman: It’s all driven by population growth, but the trends include feeding the world, access to energy — and we think alternative energy is a key part of that — and protecting people and the environment. We also believe that a very large share of future economic growth, as well as future demand, will occur in developing countries, since that’s where the population growth is. We have to be prepared for that, which is what we’re doing. We have research centers around the globe, including India, China and Brazil, and we’re focusing resources there.
Are people onboard with the idea of using science to address the large-scale trends you just mentioned?
Kullman: I was pleased as we came through our execution reviews last year, which are our tactical reviews, how much of our research and development and how much of our capital expenditures were focused on these megatrends. It was a huge number, over 85 percent. That wasn’t because we dictated it. It’s because our people are getting really excited. That’s what we need all of our 67,000 people to be doing.
Since becoming CEO, you have focused the company around innovation through science. Isn’t that a pretty big shift for a 209-year-old company? How are you going about it?
Kullman: It’s actually not such a big shift, because it’s really been occurring over a long period of time. In fact, it seems more like the natural evolution of the company. When I started at this company 22 years ago, it was clear that DuPont was different from other companies because of its emphasis on the utilization of science. It did basic research in a way that piqued my interest. Back then, it was chemistry — breaking down hydrocarbons with catalysis — and other techniques. Today, it’s biology. That’s a natural evolution. It’s following the science. DuPont got the portfolio of products it had — nylon, Kevlar® — using the science of the day. But if you think how much biology has changed over the last 30 years, and if your view is that innovation at DuPont is science based, then it’s natural for us to be integrating the sciences of chemistry, biology, materials science and others, to create new opportunities.
Does pursuing innovation so intensely require a culture change?
Kullman: To change culture, you first have to honor it. You have to know what’s really important about it. For us, it starts with our core values of safety and health, environmental stewardship, highest ethical behavior and respect for people. Then, you build off of the strength of these core values.
How does that work in practice?
Kullman: One of the things we did coming out of the global financial crisis was to use the crisis as an opportunity to take a look at ourselves. One of the conclusions from that exercise was to simplify the company. We created 13 businesses, instead of 22, and we took out a layer of leadership. We also regionalized the businesses to make sure they were closer to the customers. We used the financial crisis to take a look at ourselves and adjust so we could respond more rapidly to the environment.
Kullman: We need to understand customers at the local level — what their challenges are. We need to have presidents in charge of businesses who can allocate the resources we give them to create real value. And we have to run processes to allocate those resources so that we get clarity on what the goals are. When you create a clear strategy for the company, then all else follows. People understand what they have to do to be successful, and they understand their markets and their competition better.
You said simplifying and clarity. What do you mean by that?
Kullman: There are two levels. One is the tactical level, which is “What do I have to get done this month?” The other is the strategic level. Coming out of the financial crisis, we focused on the tactical level. Going into 2009, we set a series of directives about what we had to get done to be successful. It was a very scary year because the markets were in free fall. It affected everything except agriculture. (Agriculture didn’t have a global financial crisis. It did fine.) So, we got into a mode of having a very clear set of objectives, which, if we met them, we’d be successful. These objectives change every year. In 2009, it was productivity and cash, though we never slowed down our research and development. In 2010, it was about new product introductions — and we had a record number of new products introduced compared to any other year for our company. In 2011, it is about continuing to maintain the operating leverage and revenue growth and to enhance our research-and-development efforts. As a result of these directives, people were very clear regarding what they had to do. My goal was to have every person in the company see themselves in relation to these directives. It was to have everyone connect to one or two of them in a way that says “What I do makes a difference for the company.” It was to have people understand that if they are successful, then the company is successful. When people do that, it’s very powerful.
And what about the strategic level?
Kullman: When we looked at the strategic level during the financial crisis we asked ourselves, Where we are headed as a company? That was when we began looking externally. It was when we started looking at the world more broadly and asking ourselves how we relate to it. We began asking ourselves how we can stay relevant to our customers in the decades to come.
What do you mean by looking externally?
Kullman: We have some words that relate to it. They are inclusive innovation. We use these words to include not only our customers in the innovation process, but governments, NGOs and of course, our own people. It means opening the doors a little wider. For example, customers can tell us they need Kevlar to be processed a little differently to be right for their manufacturing systems. But unless we go into their plant sites with them and work with them, we can’t really understand how we should change Kevlar so they can get the results they need.
I understand you’ve developed something called a global collaboratory. What is that?
Kullman: First, it’s actually a real word. We didn’t make it up! It’s an element of inclusive innovation. But it’s applied differently throughout the company because of our scope. How you engage with a Brazilian food company is very different from how you engage with an American automotive company or a Chinese solar panel company. The point is that it is a way of working jointly with customers and others. Let me give you an example. We have an annual event we call Tech Con, which used to be just an internal event where we brought our researchers together. Now we bring in customers and we share. As a young marketer, I remember going around Tech Con with a pad of paper, and I made all kinds of notes after talking to the scientists about all the fascinating things that were being done and all the applications they were working on to see how it had relevance to what I was doing. I’d get all kinds of ideas — which was one reason we shared the science across the company. But a couple of years ago we opened it up and began bringing in customers on the first day. We might bring in four or five customers in different market segments, and put teams together in rooms and have them talk together about what their issues are and what our science can do. I remember one of our customers, the head of a food company in Brazil, telling me that at their session that day they came up with close to 100 ideas about how we could work together. Now, not all of these ideas will work out, but he was really excited about it and said he’s never experienced this type of interaction before. Later, in the evenings, we get together and have all the companies we invited talk to our people — our researchers, our marketers — about what their needs are. Doing this allows 300 or 400 people to get exposure to different industries. That’s how we learn about collaborating. And, as we do it, we find new and different opportunities to partner around products and services to meet our customers’ needs.
Let’s talk about leading an organization that aims to be innovative. What is the role of the leader in an organization like that?
Kullman: I ask myself that every morning! First, I do a lot of communicating in large groups, in small groups, in town meetings. I also do a lot of communicating outside the company. People watch and listen very carefully because they want to understand where we’re going and how they can participate in it. So, the leader of an innovative organization is kind of a chief cheerleader as well as the person who holds up the mirror when things aren’t going so well. Now, I’m a big believer in transparency and accountability from a leadership standpoint. That means if it’s good enough to be done, it’s good enough to be talked about. So, I’m willing to get up and say, here’s something that we do really well and I think we should replicate it. When I do that, you wouldn’t believe how many of our other businesses then try and figure out how to make it work for them. I also sometimes get up and say, this is something that I don’t think we do so great and I think we ought to do it better. That gets activity going, too.
Are there specific metrics that you use around innovation?
Kullman: Yes. The big question is, how do you get a return on your innovation? Measuring that is the holy grail. Our chief technology officer is trying to come up with metrics that really get at that. We use the percent of revenue from new products. We started with products less than five years old, and now we’re at less than four years old, because we wanted to get up the curve fast. Last year, after we changed it to four years, we found 31 percent of our revenue came from products introduced in the last four years. We’re hitting our numbers, but we have to get better at it.
Compared with many other companies, that’s an excellent showing.
Kullman: Maybe. But we still have to improve. I’ll give you an example of how we’ve changed — metalized paste. It is used in producing solar cells. We used to introduce a new version every three years. Now, we are introducing two new versions a year because the science is allowing us to do it and because the customers are saying, “We need this.” So the pace of innovation has changed over the last decades, which is why our number is high — and getting higher. But we still have to improve.
DuPont invented the modern business model in the 1920s. Back then, it was probably the first company to look at returns on equity and capital. Are there return on equity models or capital models for innovation?
Kullman: You can understand it on a granular basis, but when you take a broader view of a company like ours you have to ask if it’s relevant. So we look at absolute returns on the businesses because, after all, they manage their portfolios of products and they manage their markets and applications. So, they need to do things that keep their returns up. And we certainly understand the returns on any given new product. But what do you do with the costs of the products that don’t pan out? That complicates anyreturn-on-innovation picture you get into. That’s why we try to keep it business centered.
Aside from being an innovator, do you have a picture of what DuPont will look like in future decades?
Kullman: I believe that form follows function and that the company is going to look more and more like those areas where we’re successful with our science and innovation. If success is what leads us, that’s great. The problem with looking far into the future is that you don’t know what you don’t know. We didn’t know there would be a global financial crisis, for example.
But you also have to allocate capital and human resources and that takes some understanding of where the company is headed.
Kullman: Of course. That’s why we run the processes that we run from a strategic standpoint and from an execution standpoint. That’s why we look at it business by business and why we look at it in the aggregate and we ask what makes sense and where is it all leading us. And, that’s why we project out five years, 10 years, and ask, What does the company look like? But some actions can have very big impacts over the long haul. Our recent acquisition of Danisco, a leader in enzymes and nutrition and health, changes the balance. As a result, even if we make no other changes in the next 10 years, we will be much more heavily involved, earnings-wise, in nutrition as well as in agriculture, biotechnology, advanced materials, than we are on the performance side — chemicals. So, we’re really changing the focus of the company to areas where we think science has a higher value and that align with the megatrends I described.
What does that mean in terms of your human capital? Will you have to bring in people with new kinds of skills?
Kullman: Agronomists, that’s for sure. The agriculture side of the business is growing. In addition, what’s interesting is that there are a lot of baby boomers in the business who, in the next five years or so, will be retiring. Our average age in the United States is in the mid-50s. That’s the highest of any country in which we operate. So a large share of our work force in the U.S. will be turning over. That gives us an opportunity to add new skills. But we also have to be mindful that the people who will be retiring have huge amounts of information that we can’t lose.
Is that same demographic transition going on globally?
Kullman: We’re much younger in Latin America and Asia than we are in Western Europe and the U.S. But I have to say, when you’re out with young people, when you’re hiring, you really see that they want to change the world. They really like the stuff we’re working on. I recently gave the commencement address at Lehigh University, where we hired about 10 or 12 people out of the graduating class, mostly engineers. They were really excited about the kind of work they were going to be doing. They were saying, “Wow, what you’re doing is really cool,” because they want to work on things that will make a difference, which is using science to solve the big issues I mentioned.
How do you keep in tune with the organization and make certain you continue to learn?
Kullman: It’s easy to get isolated in the job. So, you have to get out and you have to interact with your peers at various organizations. But it’s also about getting out of the big cities and going into the smaller cities and rural areas where, in agriculture, for example, the real stuff is going on. I was just in India and instead of the standard visits to Mumbai, Delhi, or even Hyderabad, where we have a major research center, I went up to Amritsar, in the Punjab region, which is a big agricultural area. I went into villages and spent time with farmers, individually and in groups. I also went out into the fields. When you do that, you come back with a totally different perspective than if you’re in a conference room in a hotel or office building in Delhi talking about what the needs are in India. It’s logistically challenging to do that, and it takes time, but it’s important. You also have to talk to your channel partners; you have to talk to the farmers themselves. I think you have to see how our insecticides are being sold, for example, in tiny little packages instead of in big cans. These areas are very different from North America, where it’s production agriculture. And yet, we need to be equally successful in these areas. So getting out and seeing what’s going on is important because then I can understand when someone on our India team comes in. I know what the conditions really are. In addition to getting out, I also read — mostly articles and magazines, sometimes books in an area of interest. Agriculture, for example, was an area where I didn’t spend a lot of time earlier in my career and I had no firsthand experience when I became CEO. As a result, I had to immerse myself in the field to get my knowledge level to the right place so I could understand the challenges.
You said it’s easy to get isolated. How do you prevent that from happening inside the organization?
Kullman: We run an office of the chief executive, which includes the top seven people in the company. It’s the CFO, head of human resources, legal, the three executive vice presidents who run the businesses, and me. I started out as CEO by saying to the group, that each of you has your role in the organization, but in this office, you have to be an enterprise thinker. As such, you have to think for the entire company, not just your area. From my own perspective, I have taught myself to sit back and listen and not always weigh in. Of course, if someone wants to know where I am on a subject, I’ll tell them. I don’t play games. But I really and truly need to know where they are and why. I think we make better decisions if we get everybody to discuss the elephant in the room as opposed to wondering why the elephant is sitting in the corner. That’s a process that we’ve gotten a lot better at. We’ve even utilized behavior processes that we started using in our production system and we run them in our office. One segment of that process is called “mind-set of behaviors.” The premise is that if you create an environment where people feel they can bring their whole selves to the table to help, then you’ll get a lot more done than if people feel intimidated or don’t like something else in the environment. So we’ve trained ourselves around a set of behaviors and around some mind-sets. We put the entire office of the CEO through these processes, including me. I think it has helped us create a better dialogue and better ways to get issues on the table faster. And I think that’s helped us with our decision making. Another thing I do to stay in touch is have a small meeting two or three times a month with 10 to 12 people. We do different cuts — middle management, cross-organizational, and so on. For the first 15 minutes, I talk about where we’re taking the company. Then, the next hour and fifteen minutes is all about asking me questions. And we never end early. There’re no questions that are out of bounds and nothing that’s going to be reported back to anyone’s boss. I get great insight from these meetings. And I also have questions for them. So, we get into a dialogue and I find it helps me reinforce the message about where we’re going as a company. It helps them understand it, too. They can also be quite blunt about things. They’re not shy. They’ll say: “I don’t understand why you made this change. I liked how my job was before, and now it’s different and I don’t understand why that’s the case.” So we talk about it. And I talk about what I saw getting done and what I didn’t see getting done.
There are a lot of things you can do to get a dialogue going and help create engagement. The more engagement and dialogue you have with the teams, the more likely you’ll get to the right questions and the right issues and the right decisions. When that happens, it’s powerful.