InformationWeek

November 27, 2000

Chiefs Of The Year:
Long-Term Partners

Roger Mowen, Ernie Deavenport
Eastman Chemical

hey quote Michael Dell and Andy Grove, sing the praises of Microsoft and Cisco Systems, and invest in emerging software companies. CIO Roger Mowen buries his nose in new economy management books and devours technology magazines, while CEO Ernie Deavenport regularly E-mails Dell, whom he calls Michael, to coordinate speaking engagements and other cross-company activities. To stay in touch, Mowen and Deavenport zip one another wireless E-mail messages on BlackBerry pagers.

Forget Seattle and Silicon Valley. These executives are living the high-tech high life at an 80-year-old chemical manufacturer in eastern Tennessee. And they're remaking Eastman Chemical Co. in the process.

Roger Mowen and Ernie Deavenport Photo by Mark Esher Under the supervision of Deavenport and Mowen, Eastman, in Kingsport, Tenn., is on track to push $200 million of this year's projected $5 billion in sales through a Web storefront. It's also nearing completion of a multiyear SAP R/3 upgrade that's designed to link Eastman's inventory and purchasing systems with suppliers and big customers such as Coca-Cola, Eastman Kodak, Sherwin-Williams, and 3M. Eastman's also investing in software vendors such as webMethods Inc. and Moai Technologies, Inc., whose Extensible Markup Language technology should help Eastman glue its new R/3 system to customers' computers.

The projects are supposed to drive costs out of a labor-intensive purchasing system and help Eastman deliver technical support, product information, and other services to its most valuable customers electronically, boosting earnings and customer loyalty at a time when both are hard to come by. "Do you want to step back and wait until technology kills you?" says Deavenport, 62, a chemical engineer by training. "Or do you want to be out there on the leading edge?"

Whiz kids they're not. Deavenport recently celebrated his 40th anniversary at Eastman Chemical, founded in 1920 to make photographic chemicals for Eastman Kodak. Kodak spun off the chemical unit as an independent company in 1994. Mowen started working for Eastman in 1971, right out of graduate school.

Two years ago, Mowen, a career-long sales and marketing man with an affinity for technology, started reading about Internet sales and purchasing at companies such as Dell Computer, Cisco, and Microsoft. "I read everything I can to connect disparate thoughts into a unique idea," says the CIO, who scours about 30 magazines a month and a book a week--many of which end up in a makeshift executive library he maintains in his cube. Mowen's connection at the time: "Take what Dell and Cisco had done and apply that to a brick-and-mortar company like Eastman Chemical." In pursuit of the goal, Mowen rounded up six Eastman executives and the company plane for a two-month fact-finding tour, which also encompassed industry startups such as ChemConnect Inc.

Later that spring, Mowen presented Deavenport with his report, which included the suggestion that Mowen--who headed Eastman's worldwide sales-force and supply-chain operations--take charge of IT as well. In addition, Mowen suggested that Eastman start implementing E-business and management practices that he'd learned about from the tech companies he and his team studied, such as linking Eastman's Web store to its enterprise resource planning system. Mowen, who served as Deavenport's staff assistant in 1986 when the CEO was an assistant general manager, says his standing on the business side of the house helped push through his IT agenda. "When I went to Ernie, I had a lot of credibility," Mowen says. "It wasn't like the IT guy going to him."

Then again, neither executive thought the status quo was working. Investors have been bruising the stocks of chemical companies, which have been burned by rising raw material costs, falling prices of commodity petrochemicals and plastics, overexpansion in Asia, and more sophisticated customers unwilling to tolerate large markups on specialty chemicals such as food additives and pigments. As one of the few remaining midsize chemical companies, Eastman is trying to reposition itself as a supplier of specialty products to avoid a slugfest on commodities with giant chemical producers such as BASF, Dow Chemical, and DuPont, as well as with big oil companies such as BP Amoco, Exxon Mobil, and Royal Dutch/Shell Group. Eastman says its specialty business will double this year to $1.2 billion, but that's still only a quarter of its revenue.

"The market is saying it doesn't believe the growth prospects for chemical companies are that great," says George Young, a senior manager at Deloitte Consulting who advises the sector on management strategy and IT issues. Chemical companies have always boasted savvy salesmen, top-notch technical support, and customer-driven product development. The problem, Young says, is "they tried to do it for everybody." Now, with revenue under pressure, it's too expensive to maintain that level of service for all but the best customers. Enter the Internet. "If your SAP systems can talk to each other in real time, you can do things like automatic replenishment, lock in customers, and grow the business," Young says. "That's what the Street will reward."

So far, Eastman's efforts "haven't been enough to move the needle" on Wall Street, Mowen says. Eastman stock is trading at about $42 after closing as high as $54.125 in May. Third-quarter earnings nearly tripled, to $97 million, but Eastman had to slice investment in research and development and other areas, and Deavenport warned that rising energy costs could hurt the chemical industry in the fourth quarter.

During the next two years, Mowen swears he'll get costs down--and earnings up--by using the Internet to wring inefficiencies from Eastman's procurement, sales, and human-resources operations. "Having the back office standardized is a huge advantage," he says. Deloitte estimates it costs chemical companies $60 to $100 to process a paper order, vs. $15 to $30 online. "Not only that," says Mowen, "but I can drive top-line growth by our customers having a better experience than with our fiercest competitors."

Doing so will take some fancy footwork. Eastman is expanding internationally and estimates that 35% of revenue this year will come from outside the United States. At the same time, the company is paring its workforce in Tennessee to reduce costs. Last year, Eastman cut nearly 1,200 jobs, about 8% of its workforce, either through early-retirement incentives or layoffs. That was part of a $200 million cost reduction that began late last year and is scheduled for completion this year. Downsizing makes it tougher to push through ambitious technology projects, Mowen admits, especially at a time when the IT staff is stretched thin installing R/3 and a new manufacturing system. "There's a war for talent in American industry," he says, and "we haven't hired in IT in five years."

Still, Mowen and Deavenport buy whole-hog into the notion that by embracing technology, they can not only run Eastman cheaper, but "capture the voice of the customer" and create loyalty in a price-transparent Internet era. Deavenport cites computer industry success stories such as Intel chairman Grove and Dell's CEO, whom he once invited to address Eastman's executive staff. "You don't benchmark against companies in your industry," says Deavenport. "You benchmark against the world's best."

The CEO is even becoming more at ease with the technology in his office. When Deavenport hears about technology pilots at Eastman, he wants to participate. Hence, the E-mail pagers and notebook docking station he keeps at home. "I figure if I don't use it, I won't understand it," he says.

That's a long way from a few years ago, when Deavenport confessed to a reporter that he was just learning how to use his PC. "I've always tried to push technology," he says. But in the past, "I accepted a lot of it on faith." For an old-time engineer from Mississippi and a salesman-turned-CIO, turnabout looks like fair play.

Return to the "Chiefs Of The Year" introduction page.

Photo by Mark Esher

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