InformationWeek: The Business Value of Technology

October 2, 2000

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Eastman CEO Is Keen On E-Commerce

E-business and IT initiatives help company keep up with transformations in chemical industry

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arnest Deavenport isn't your typical New Economy type. The 62-year-old chairman and CEO of Eastman Chemical Co. grew up far from Silicon Valley, in a rural Mississippi town where he helped his parents run an auto shop, cattle ranch, and cotton farm. Instead of hopping from one new venture to the next, he was a loyal employee of Eastman Kodak from 1960: He took a position as a chemical engineer soon after graduating from college and stayed until 1994, when he became CEO of Eastman Chemical, following the spin-off of the chemicals division.

But behind this Southern gentleman's amiable smile, slight drawl, and Kingsport, Tenn., address is a keen businessman who changes with the times and isn't afraid to shake things up. Last year, he led his $4.6 billion company on an aggressive E-commerce initiative, forming an E-business unit and advisory board made up of external experts.

As part of the strategy, the company launched an online marketplace called EastmanMarketPlace.com, where it has conducted more than 80 private auctions with its customers, and an online customer self-service center, Eastman.com, where customers can access their accounts and place and track orders. The company expects to generate $200 million in online revenue this year.

Eastman has also formed a Digital Business Ventures unit, which has invested tens of millions of dollars in Internet startups such as ChemConnect, Commerx, eChemicals, eCredit, Moai Technologies, and webMethods. It has also launched several ventures of its own, including ShipChem.com, a chemicals shipping marketplace in partnership with Global Logistics Technologies, and the PaintandCoatings.com marketplace in conjunction with VerticalNet.

An early adopter of SAP, Eastman is extending its internal systems and data to customers and suppliers via system-to-system links using webMethods' integration software. It's also automating more business interactions with employee self-service applications and customer-relationship management applications.

Deavenport talked with InformationWeek associate editor Alorie Gilbert during a recent visit to San Francisco for a quarterly E-business advisory board meeting.

InformationWeek: How are E-business and advances in IT transforming Eastman Chemical?

Deavenport: When I became president of this group, we were part of Kodak until 1994. We had $3.3 billion in revenue and 24,000 full-time employees and contractors. We're now a $5 billion company and we have around 17,000 employees. Now, where did we get all that productivity? Sure, we've got some automated systems in our plants, but we've gained most of it in the white-collar area through digitization--eliminating the person-to-person transactions internally within the company.

If you can do that digitally, there are two people that you don't have to replace. Fortunately, we've been able to do most of this over the years by attrition and a small amount by actually laying people off.

InformationWeek: How are these factors transforming the chemicals industry?

Deavenport: One of the problems with most mature industries, like the chemicals industry, is that there's generally more capacity and supply in the world than demand. Much of that supply isn't very efficient, so I think E-commerce allows you the opportunity to generate supply much more efficiently with less capital investment in physical infrastructure, plants, etc.

I predict E-business will really shift power away from people who have lots and lots of brick and mortar and have taken a lot of solace in the fact that they're big, so therefore they're going to get the business. It's shifting power away from them and into smaller companies that can use E-commerce to leverage and compensate for their size.

InformationWeek: Isn't Eastman a major player? How will this affect you?

Deavenport: We need to move our total company and all our businesses toward less capital, faster paybacks, and higher growth, and lowering and continuing to drive down cost.

InformationWeek:Give an example.

Deavenport: ShipChem.com is a venture we've incubated within Eastman and launched as a joint venture with a software company called Global Logistics. We're outsourcing all of our logistics to this new company. I think it's a $600 million expenditure for us and roughly 100 people who work in our logistics organization.

The logistics for the chemicals industry is a very, very important function. It's not like you can call FedEx and say, "Come pick it up." You have to ship tank cars, tank trucks, bulk trucks. You've got to get barges and ship containers all around the world. You've got to have a lot of domain expertise in that. So we formed this company, and now we're in the process of beginning to outsource all of our logistics to them, so this will be a company that will have $600 million of revenue, just like that.

InformationWeek: What has Eastman Chemical observed from its investments in Internet startups?

Deavenport: You've got to appreciate that most of these companies and people from the virtual world may or may not understand credit. They may not understand chemicals. They may not understand this or that, so we bring them domain experience and say, "Oh, you want to run an auction? Well, you're not going to ever get anybody to agree on an auction that way." So they modify and work with us.

InformationWeek: How are you using online auctions?

Deavenport: One area is off-spec materials. Our normal process would be to go and call several brokers around the world and say we have 10 million pounds of product X and it has these specifications. We'd like to move that product. Maybe days or weeks later you finally get a broker who says, "I've got a buyer here." When you put this on the Web within three or four hours, you conduct an auction and you can sell it to the highest bidder. In one particular case, we sold materials to a company in Australia that we'd never heard of. The Web found us a customer that was willing to pay a higher price than we could have found anywhere else.

InformationWeek: Why rock the boat with all the change E-commerce brings? What's at stake? What's the urgency?

Deavenport:What's at stake is the face of the customer and the mind of the customer. Everything we're doing in E-commerce is about being customer-focused and customer-centric. This is the way we're going to get into the customer's mind and understand the customer better than we ever have before.

When you get into the mind of the customer through this linkage, you can give all sorts of data back to the customer. You have all sorts of data to process and understand the needs of the customer. You can make it very easy for the customer to do business with you over a Web-enabled system and digitized processes. Your salespeople aren't doing transactional work. They're out there understanding the strategy of this business unit of Proctor & Gamble, for example.

InformationWeek: But where does that leave your sales and customer-service organizations?

Deavenport: Ultimately, we'll have salespeople really sit down with our customers. They won't have to talk about how much material they're going to need next month, where to ship it, or the price of it. All the logistics and transactional type of stuff that goes on now that our salespeople spend a lot of time on will be digitized.

Our customers will know what we have in inventory. And we'll know what they have in inventory. Our salespeople will be out there saying, "What new products do you have coming along? What markets are you going into next year? What are your strategies? How can we help?"

InformationWeek: How does selling on the Web, via online auctions and such, change the relationship with the customer?

Deavenport:We always want to know who we're selling to. We always want to know if they're reputable people--not just if they have good credit but how they're using what they buy from us. Do they know how to use it safely? How do they dispose of what they're using? It's the whole safety-health-environmental chain that we call the fifth principle of responsible care, which says that we go further downstream than just saying we produced it.

E-commerce brings some very interesting challenges in that area because somebody comes up and says they want to order this. Well, who are you?

InformationWeek: What are your top competitors doing in this area?

Deavenport: Our competitors are lagging behind us now. In the world of E-business, a lag isn't very far behind. There are people who have a lot more money than we do. They can throw a lot more money at it. Some of the large consortia you've seen set up are an effort to say, "We're the big guys. We can do this." But so many people we talk to here in the Valley and other places kind of confirm what we think: These consortia aren't going to work.

Let's use the auto industry as an example. To think that DaimlerChrysler, Ford, General Motors, and all these people are all of a sudden going to be buddy-buddy and get together and do all this stuff in this consortium is crazy. After all, they've competed with each other knife-to-knife for years.

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