Ch. 12 Implementing Corporate Diversification

With M-Form corporate diversification comes the need for a corporate governance and ethical business oversight.  This roles is held by the board of directors.  A typical board of directors operates within various oversight committees.  The DuPont board of directors maintain five individual oversight committees.  These are the Auditing Committee, Corporate Governance Committee, Environmental Policy Committee, HR and Compensation Committee, and Science/Technology Committee.  These committee operate in the interest of the firm with committee charters and codes of conduct.  These serve support, check, and balance the authority of the Chief Executive Officer and other executive officers choosing the direction of the firm.

http://www.dupont.com/corporate-functions/our-company/leadership/board-of-directors/articles/board-of-directors-committees.html

Ch. 11 Corporate Diversification

In the 1920’s DuPont was best known as the manufacturer of explosives and demolition technology.  It managed to leverage its knowledge of chemicals used in explosives to branch into fields of chemical products such as paints and fertilizer.  At that time, companies that were capable of diversifying and growing its product portfolio were more likely to adopt corporate diversification strategies.  The need arose from companies needing a corporate structure to complement their business strategy of diversification.  What came from this need was the beginning of multi-divisional corporate structuring. 

http://en.wikipedia.org/wiki/Multi-divisional_form

Ch. 10 Vertical Integration

Many observers claim that adequate vertical integration is crucial to continued growth and sustaining a competitive advantage.  It is a strategy adopted by many of the world’s largest firms and DuPont is no different.  In 1981 DuPont acquired Conoco Inc. in a $7.3 billion deal.  The chairman for DuPont at the time stated that the merger provided DuPont with a captive hydrocarbon feedstock source.  The goal was to reduce exposure of the combined firms to fluctuations in the price of energy and hydrocarbons.  This is a common strategy to unite the intensions of both firms and eliminate any additional costs of doing business in a 3^rd party structure.

Çh.9: Collusion

Another large business sector for Dupont is in seeds development and agriculture technologies.  In an effort to compete against Monsanto in 2006, Dupont and Syngenta signed a partnership arrangement to compete directly with Monsato, as apposed to each other.  Indirect collusion is refereed to as tacit, while direct collision (such as price fixing) is illegal.

Ch.8: Flexibility

Acquisitions have been a large part of Duponts historical strategy for product diversity. Merging is a means for expediting the process of developing new profitable product lines.  An example is Duponts acquisition of the Danish chemical company Danisco.  The strategy was to gain short cut entrance into the industry of designer enzyme development.  Danisco was known for making advances enzymatic digestion of cellulose material for fermentation and ethanol formation.

https://books.google.com/books?id=OR24BAAAQBAJ&pg=PA16&lpg=PA16&dq=Dupont+company+portfolio+flexibility&source=bl&ots=_Qfn4s0Au0&sig=6XduPjQZKal_kT5JdwlwDm9podQ&hl=en&sa=X&ei=ZkA0VZrPGcmrgwTu6YFI&ved=0CF0Q6AEwBw#v=onepage&q=Dupont%20company%20portfolio%20flexibility&f=false

Ch. 7: Product Diversification

Dupont was the first company in the world to incorporate a structural solution to product diversification.  Following strategic expansion in 1921, Dupont decentralized into separate divisions for each product line.  These "business units" operated under unique management and budgets.  Example units included agriculture, nutrition, electronics, communication, safety and protection, home and construction, transportation, and apparel.  Many sectors containing value added products and customer solutions, but that did not exactly relate well with one another in terms operation.  These units differed in capital requirement, industrial maintenance intensiveness, vendors, logistics, and even market strategy.  For these reasons it can be highly effective to manage the product lines separately. This form of diversification is common in many corporations today.

https://books.google.com/books?id=IvKYhrXAfRUC&pg=PA422&lpg=PA422&dq=Dupont+product+diversification&source=bl&ots=7nFFqkk2YL&sig=vmJvfU8E6PrsR6jQpFrAinF9QjU&hl=en&sa=X&ei=IyIrVZXfLoPAggS99ICIDw&ved=0CE0Q6AEwBQ#v=onepage&q=Dupont%20product%20diversification&f=false

Ch.6: Cost Leadership

Cost leadership means leveraging you advantages to decrease your costs of doing business below those of the competition. One of those advantages for Dupont is its sheer size and diversity. It is capable of leaveraging its economies of scale to influence large scale purchasing and supply chain management. So what does the major division and restructuring Dupont mean for the power that comes from its size and influence? In late December, Dupont announced that it would be splitting into two individual corporations, one dedicated to agriculture and the other dedicated chemicals. The new chemical company is to be called Chemours, while Dupont will keep its historic name and brand for the agriculture business. The greater impact is yet unknown, but many questions are left on the table. It was not long ago that such a stunt of separation occurred with Netflix. How will this limit Dupont's ability to leverage a diverse product portfolio between chemicals and agriculture?

Ch. 5: Evaluating Stengths And Weakness

Dupont is very well diversified in the chemical and materials production industries. However their products are by and large inputs for other companies to manufacture into consumer goods. The particular arrangement ties the success of Dupont directly to the success of the goods produced by their customers. This also makes the success of Dupont an indicator of domestic economic health. Higher sales and growth is directly correlated to consumer spending in the open market. A strength of Dupont is its diversification. It's two largest business units are chemicals and agriculture. A hit to the chemical sector may cause sales losses for Dupont chemical, Dow chemical, and Exxon, but a gain in agriculture can balance net profits. http://www.investopedia.com/stock-analysis/2010/the-good-and-bad-of-duponts-strength-dd-hun-mrk-alb-stp-jaso-dow1028.aspx http://www.forbes.com/sites/afontevecchia/2013/04/23/dupont-and-a-hungry-world-offset-chemicals-weakness-dividend-hiked-outlook-reaffirmed/

Ch.4: Evironmental Opportunities

Innovation is a means for a company to improve upon its current processes and create new one's to add value. A relatively recent change in consumer market demand is the ability to wash fabrics using less water and less energy. Dupont is currently involved with product development efforts to help the detergent industry better achieve this goal. Dupont is launching a newly specialized enzyme alpha amylase for digesting starches. Any starch based stains can easily be removed by digesting into sugars which can be dissolved in cool water. The new product is called PREFERENZ S100 and was developed through protein engineering advances. This new enzyme enables a detergent to be just effective at 16C as at 32C. 16C cool water is roughly 60F.

http://www.dupont.com/corporate-functions/our-approach/sustainability/innovation/stories-innovation/articles/laundry-cold-water.html

Ch. 3: Environmental Threats

Chapter 3 explores the concepts related to outside company threats to business by competitors.  Dupont is a large player in the oligopolistic industry of bulk chemical production and sales.  There are few players in this industry and Dupont is not the largest.  The cost of entry is very high.  BASF corporation leads the pack with a net income of 5.6B last year and more than 110,000 employees world wide.  Second is Dupont with 3.6B in net income last year.  Then DOW chemical closely follows with 3.4B last year.  Exxon mobile desires an honorable mention for its industrial chemicals business unit, however it's financials are private.

Dupont should be concerned with a high threat of rivalry, compared to a low threat of entry.  These chemical titans are in constant competition for market share.  The threats from whole buyers are sellers are shared among the industry leaders.

Chapter 2: Firm Performance and Competitive Advantage

Chapter 2:  Firm Performance and Competitive Advantage

In the 1990's, Dupont took action to refocus it's resources on their core competency business segments.  This is the root for a strategy to building upon competitive advantage in the chemical industry.  This initiative meant building and investing in it's highest margin business that best fit their strategic goals, while at the same time divesting from those ventures that did not best fit the companies long term intentions.  An example of this would be the 1993 transaction between Dupont and ICI in which Dupont acquired the nylon business segment of ICI and ICI acquired the acrylics business from Dupont.  Dupont did not make changes to it's mission, but concentrated its business on what it did best.

Though competitive advantage was gained by refocusing resources on core competencies, it does not mean that Dupont lessened it's focus on growth and innovation.  In 1994 a joint venture was forged with Conoco which began producing oil from the Russian Arctic.  This was the first major oil field brought into production by a Russian/Western entity since the fall of the Soviet Union.

Introduction

The name's Jake.  Named for the Big Jake character played by John Wayne.  It's my last semester in the MBA program at UofM and I am thrilled.  I have a kid on the way this summer, so wont have much time for for classes anymore.  Good timing.  I'm a Chemical Engineer and my passion rests in technical expertise and idea of making a product I am truly proud of.  It is that passion that leads me to the topic of Dupont chemical.  Though I don't work for them, I can certainly appreciate their craft and mastery of it.  Tyvek, Teflon, and Kevlar.  Life changing innovations that any engineer on the ground floor would feel great pride in being apart of.

This is going to be fun.  Let's take a close look at what makes chemistry such a lucrative field of study by learning a bit about an industrial powerhouse and trailblazer.