1566768837

Strategic Management
for the
Plastics Industry
Roger F. Jones
Endorsed by
CRC PR E S S
Boca Raton London New York Washington, D.C.
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Library of Congress Cataloging-in-Publication Data

Jones, Roger F.
Strategic management for the plastics industry / Roger F. Jones.
p. cm.
Includes bibliographical references and index.
ISBN 1-56676-883-7 (alk. paper)
1. Plastics industry and tradeManagement. I. Title.
HD9661.A2 J664 2002
668.4'068dc21
2002073734
CIP
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2003 by CRC Press LLC
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Printed on acid-free paper
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Dedication
This book is dedicated to the Avisun R&D management team of

the 1960s Earl Honeycutt, John Houseman, and George Mays in memoriam
and Charles Heyd the finest group of managers I have ever known.
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Foreward
The Society of Plastics Engineers is pleased to sponsor Strategic Management

for the Plastics Industry by Roger Jones, As Roger Jones points out in this
book, the various types of companies that comprise the plastics industry are
indeed diverse, both in size and corporate cultures. There is a vast difference
between a machinery maker and the processor who uses the machinerythere
is also a huge difference beetween the giant polymer manufacturer and the
small company that compounds the material or provides color match services.
While there can be no "one size fits all" management structure that covers
the entire industry, this book provides a unique overview of successful
management techniques based on years of experience within the plastics
industry. The book also analyses and explains how and why business elements
within the industry differ, and proposes practical, effective ways to deal with
the most common problems that face managers in each segment.
Anyone who is either struggling to manage a plastics company in todays
globally competitive environment, or who aspires to move up into a management position should find this timely plastics industry-specific book invaluable.
By studying and learning from successful, and unsuccessful, management
techniques and experiences gleaned from the past and present, we can all
reap the "benefit of someone elses tuition bill" to quote Roger.
Many in our industry come from backgrounds of science and engineering
but, to be truly successful today, equally proficient management skills are
required to achieve corporate goals for growth and profitability, at the same
time satisfying the needs of all the stakeholdersstockholders, employees,
customers, vendors and the community.
SPE, through its Technical Volumes Committee, has long sponsored books
on various aspects of plastics. Its involvement has ranged from identification
of needed volumes and recruitment of authors to peer review and approval
and publication of new books.
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vi
Strategic Management for the Plastics Industry
Technical competence pervades all SPE activities, not only in the publication
of books but also in other areas, such as sponsorship of technical conferences
and educational programs.
Michael R. Cappelletti
Executive Director
Society of Plastics Engineers
Technical Volumes Committee:
Vaman Kulkarni, Chairperson
Isobel Wayrick, Reviewer
GR Technical Services, Inc.
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Preface
This book is written for a broad audience in the plastics industry, including
aspiring professionals who wish to become managers, managers already in
place who wish to round out their skills, consultants to the industry, and
university students and faculty in plastics engineering and polymer chemistry
departments. It is meant to be applicable to managing companies throughout
the wide range of sizes that comprise this industry. In the book, I use the
term manager rather than executive because I believe the word is more
inclusive. I define managers as including department heads as well as company
officers (whom I consider to be executives). Additionally, managers direct
other managers, while supervisors direct individual workers and professionals.
The term management refers to the management group as directed by and
including the senior executives and chief executive officer (CEO). Most of the
material presented here is directed toward management, but some is still
applicable to first-level supervision, though this is not the intended audience.
A number of general management topics are discussed within the overall
context of management in the plastics industry. The reader who will benefit
most has at least some passing familiarity with supervising others.
For purposes of this book, the term plastics industry is defined as referring
to the development, manufacture, compounding, and distribution of plastics
materials and their processing or fabrication into items. Polymer processing
machinery, additives, and other suppliers to the industry are described in
somewhat less detail due to the enormous variety of firms comprising this
field and the fact that their involvement in plastics is frequently as divisions
or business units of corporations whose main business is not plastics. This
structure was a necessary compromise in order to keep the book from being
overly broad and within the limits of my own knowledge. The material
presented is based on my experience, extensive research, and interviews with
managers throughout the industry. A bibliography is included that lists some
of my favorite management books and a number of my own publications that
vii
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viii
provide more extensive background information for some of the topics that
appear in this book.
I recognize that the plastics industry is in the midst of dramatic and painful
changes due to the impact of increasingly globalized competition as well as
an unusually strong, simultaneous slowing of the world economy. While these
factors are speeding up the rate of change, they do not overturn the fundamental principles of how to manage successfully in the plastics industry.
In general, I have tried to describe typical situations while noting some of
the more interesting and important exceptions. For some of the more egregious
management errors noted, the names of the companies involved are omitted
but the incidents were real. The case histories are based on interviews with
senior executives in the respective companies who were willing to be interviewed and illustrate some examples of successful management in the industry.
Roger F. Jones
Broomall, PA
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Acknowledgments
I wish to acknowledge the help of many people who inspired my thinking,

gave generously of their time, and helped me in uncounted ways to write
this book. Without this help, I would not have been able to complete the
work and it certainly would be far less comprehensive and thoughtful. Among
them (in no particular order) are Joe Eckenrode (Technomic Publishing),
whose initial encouragement to undertake the work was critical; Peter Drucker
(Claremont University), whose books showed me how to be a professional
manager and who has been kind enough to permit me to quote from his
work; the many people who agreed to be interviewed and share their experiences and opinions, including Jun Aranami and Yuzo Nishiguchi (Asahi
Kasei), Volker Trautz (BASF/Basell), Brian Jones (Nypro), Robert Schulz (LNP),
George Duncan (Certified Thermoplastics), Troy Eubank (Modified Plastics).
I owe much to two who are deceased: John Bickford (LNP), who promoted
me to my first general management position and taught me a great deal about
general management; and my father, Franklin D. Jones (Amchem), whose
inspiration and example led me to become a scientist and a businessman. I
owe special thanks to Peter Lantos (The Target Group), Ken Dargis (retired
from Montell), and Ken Hammond (retired from DuPont), industry friends
who reviewed my manuscript and whose comments resulted in important
additions to my work. A great many other friends, associates, and former
superiors helped to shape and influence my understanding of what it takes
to be a successful manager; I regret that I cannot begin to list their names
the roster would fill a separate book. Last, but not least, I wish to thank my
dear wife, Caryl, who ensured that I had the necessary personal space and
time in my home office to write this book.
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About the Author

Roger Franklin Jones 40-plus year career in the
plastics industry has covered a broad range of business and management functions as well as types of
companies. He began with polymer producers, in
technical positions in manufacturing and process
development at DuPont (nylon intermediates) and
ARCO Chemical (LDPE formulations), then product
development and marketing at Avisun (polypropylene resin, film, and fiber), a joint venture of American Viscose and Sun Oil that was eventually sold
to Amoco Chemicals.
He next joined LNP Engineering Plastics, a small
but rapidly growing independent compounder, and moved up through marketing and international operations management positions to COO, where he
directed the rescue of the firm from incipient bankruptcy and then its dramatic
growth into the largest independent proprietary compounder in the world.
After Beatrice Foods Co. acquired LNP, he was double-hatted as LNP president
and group executive in Beatrices Chemicals Division with responsibility for
LNP and two other companies: Dri-Print Foils (decorating foils) and Thoro
System Products (specialty construction materials). He next joined a leveraged
buyout consortium as managing partner to acquire ailing Inolex Chemical
Company, a manufacturer of plasticizers and urethane polyols, from American
Can Company; he became its chairman and president. After restoring the
company to profitability, he sold his interests in Inolex and was appointed
managing director, BASF Corporation Engineering Plastics, to direct a grassroots business start-up that included acetal, nylon 6, PBT production facilities,
a compounding plant, and a technical service center. He was also the first
BASF executive to apply cutting-edge computer technology to obtain management information that went beyond simple accounting and sales reports.
From BASF, he founded Franklin Polymers, Inc., an engineering and specialty
plastics distribution and marketing/management consulting firm; he sold its
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xii
distribution business in 2000 and transferred the consulting business to another

start-up company, Franklin International, LLC, where he is its president.
Mr. Jones received a B.Sc. with Honors in Chemistry and Honorable Mention
in English Literature from Haverford College. At the graduate level, he studied
business administration at the University of Pennsylvanias Wharton School.
He has also completed language studies in German, French, Spanish, and
Portuguese.
Mr. Jones is a widely published authority on plastics and related topics.
Both in the U.S. and overseas, he is the author of over 80 articles and papers,
inventor of record for 20 patents, and is the principal author and editor of
Hansers A Guide to Short Fiber Reinforced Plastics (1998). He was a consulting
editor for Technomic Publishing and now for CRC Press. His honors include
the Honor Scroll of the American Institute of Chemists and election as a Fellow
of the Society of Plastics Engineers (SPE). An Emeritus Member of the SPE,
he has served in a number of section, division, and national positions; he is
currently serving as chairman of SPEs Marketing and Management Division
board of directors. He is an Emeritus Member of Sigma Xi (the scientific
research society) and the American Chemical Society. He is a Life Fellow of
the American Institute of Chemists (past offices include National Secretary,
National Board Vice Chairman, Pennsylvania Institute President, Philadelphia
Chapter Chairman). He has been a guest lecturer at the Universities of
Delaware, Toronto, Wisconsin, and Winona State (Minnesota), The Packaging
Institute, and the Plastics Institutes of England and Australia.
Soon after college graduation, he served as an officer in the United States
Navy on active duty for three years at the end of the Korean War. He continued
a professional and management career in the Naval Reserve for an additional
30 years, retiring with the rank of captain. In the course of his naval service,
he received two Navy Commendation Medals, a Letter of Commendation
from the Secretary of the Navy, and a Meritorious Service Award from the
Commander, Naval Security Group. He was selected to command naval
reserve units five times and to serve on admirals staffs twice. He holds a
Certificate in Foreign Relations from the National War College and completed
senior officer courses at the Defense Intelligence School and the National
Security Agency.
Mr. Jones captained his college fencing team, was a member of U.S. National
Teams participating in two World Fencing Championships, and an alternate
on the 1956 Olympic Team. He won numerous collegiate and U.S. amateur
fencing titles, and he gained management experience as chairman of the
Philadelphia and Western New York divisions, vice president of the U.S.
Fencing Association, and Chairman of the National Rules Committee. For many
years he was tournament director of the Middle Atlantic Collegiate Fencing
Association.
Mr. Jones is married to Caryl Jeanne Reisgen Jones. They have three adult
children and eight grandchildren. Mr. Jones father, Franklin D. Jones, ScD
(Hon), was a chemical engineer who pioneered the discovery and development of plant hormones in the 1930s and 1940s.
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Contents
Introduction ..................................................................................... 1
1.1 Why a Management Book for the Plastics Industry? ............. 1
1.2 Management as a Career .......................................................... 3
1.3 Six Things Management Must Do ............................................ 7
1.3.1 Organize the Business to Meet Market
and Customer Needs...................................................... 8
1.3.2 Recognize and Manage Change .................................... 8
1.3.3 Develop Company Goals and Get Everyone
Onboard with the Plan ................................................ 10
1.3.4 Continuously Appraise Performance and Provide
Feedback ....................................................................... 11
1.3.5 Lead by Example.......................................................... 12
1.3.6 Ensure That the Business Is Increasingly Profitable .. 13
Foundations of the Industrys Segments ................................. 17

2.1 Polymer Manufacturing ........................................................... 17
2.1.1 Technology.................................................................... 18
2.1.2 Scale and Integration ................................................... 19
2.1.3 Routes to Market .......................................................... 20
2.1.3.1 Direct Sales ..................................................... 20
2.1.3.2 Distributors ...................................................... 21
2.1.3.3 E-Commerce .................................................... 21
2.2 Compounding: Key Factors .................................................... 22
2.2.1 Technology.................................................................... 22
2.2.2 Supplier Relationships .................................................. 23
2.2.3 Geographic Dispersion for Customer Focus .............. 24
2.2.4 A Place for E-Commerce? ............................................ 24
2.3 Distribution: Key Factors......................................................... 24
2.3.1 Customer Relationships ................................................ 25
2.3.2 Supplier Relationships .................................................. 26
2.3.3 Geographic Dispersion................................................. 27
2.3.4 Effects of E-Commerce................................................. 27
2.4 Processing: Key Factors .......................................................... 28
2.4.1 Technology.................................................................... 28
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xiv
2.5 Equipment, Additives, and Other........................................... 29

2.5.1 Technology.................................................................... 29
2.5.2 Critical Mass .................................................................. 30
3
Technologies and Markets Shape How a Business Is Run... 33

3.1 Technologies ............................................................................ 33
3.1.1 Materials ........................................................................ 33
3.1.1.1 Commodity and Semi-Commodity
Materials........................................................... 34
3.1.1.2 High-Performance and Unique Materials ..... 37
3.1.1.3 Support Requirements .................................... 39
3.1.2 Processing Equipment .................................................. 39
3.1.2.1 Equipment Types: Opportunities
or Limitations? ................................................. 39
3.1.2.2 Full-Service vs. Specialist ............................... 40
3.1.3 Patents, Trade Secrets, and Licensing......................... 40
3.1.4 Regulatory and Environmental Issues......................... 41
3.2 Markets ..................................................................................... 42
3.2.1 Packaging ...................................................................... 44
3.2.2 Construction .................................................................. 45
3.2.3 Automotive .................................................................... 46
3.2.4 Electrical/Electronic ...................................................... 47
3.2.5 Consumer Goods.......................................................... 49
3.2.6 Industrial Components and Semi-Finished Shapes.... 50
3.2.7 Other.............................................................................. 50
Company Culture and Organization ......................................... 53

4.1 Size Matters It Is Intertwined with Culture...................... 54
4.1.1 Entrepreneurial Culture ................................................ 55
4.1.2 Managerial Culture ....................................................... 56
4.1.3 Commodity Culture ...................................................... 57
4.1.4 Technology Culture ...................................................... 58
4.1.5 Nationality/Ethnic Culture............................................ 59
4.2 Tailoring Organizational Form to Business Needs ............... 60
4.2.1 Organizing by Function ............................................... 60
4.2.2 Organizing by Product................................................. 61
4.2.3 Organizing by Market .................................................. 62
4.2.4 Organizing by Geography ........................................... 63
4.2.5 Hybrid Organizations ................................................... 64
4.3 Management Styles .................................................................. 64
4.4 Board of Directors ................................................................... 66
Managing for Success ................................................................... 69

5.1 Planning for Success ............................................................... 69
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5.2 Managing and Integrating Functions...................................... 71

5.2.1 Research and Development......................................... 73
5.2.2 Sales and Marketing ..................................................... 74
5.2.3 Manufacturing ............................................................... 76
5.2.4 Administration ............................................................... 78
5.3 Managing Costs........................................................................ 79
6
Staffing for Success ....................................................................... 81

6.1 Recruiting.................................................................................. 81
6.1.1 Education....................................................................... 83
6.1.2 Experience..................................................................... 84
6.1.3 Personality Traits .......................................................... 85
6.1.4 References ..................................................................... 86
6.1.5 Employment Agreements ............................................. 86
6.2 Training..................................................................................... 88
6.2.1 Job Enrichment and Rotation ...................................... 88
6.2.2 Continuing Education................................................... 89
6.3 Compensation and Reviews.................................................... 90
6.4 Promotions ............................................................................... 92
6.5 Firing and Personnel Layoffs .................................................. 93
6.6 Using Temporary and Other Non-Employee Personnel ...... 96
6.7 Retention .................................................................................. 97
6.8 Plant and Laboratory Non-Professional Personnel ............... 97
6.8.1 Unions ........................................................................... 98
Tools for Management ............................................................... 101

7.1 Analyzing Your Business....................................................... 101
7.1.1 Current Relative Profitability...................................... 102
7.1.2 Relative Profitability Potential.................................... 104
7.1.3 Assigning Resources ................................................... 106
7.2 Benchmarks for Allocation of Costs .................................... 107
7.2.1 Polymer Manufacturing .............................................. 107
7.2.2 Compounder ............................................................... 108
7.2.3 Distributor ................................................................... 109
7.2.4 Processor ..................................................................... 110
7.2.5 Machinery Manufacturer ............................................ 110
7.3 Measuring Your Results......................................................... 111
7.3.1 Achievements vs. Planned Goals .............................. 111
7.3.2 Financial Statements and Stock Valuation ................ 111
7.3.3 Customer Satisfaction ................................................. 112
7.3.4 Competitive Rankings and Analyses ......................... 113
The Role of Acquisitions, Joint Ventures,

and Divestitures ........................................................................... 115
8.1 Access to Markets .................................................................. 116
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8.2
8.3
8.4
8.5
8.6
8.7
8.8
8.9
Access to Technology............................................................ 117

Manufacturing Capacity......................................................... 117
Vertical Sector Acquisition .................................................... 118
Successfully Integrating Acquisitions
into Existing Operations........................................................ 118
When and How Not to Acquire........................................... 119
Acquisitions vs. Joint Ventures ............................................. 122
Divestitures............................................................................. 123
The Challenges of Being Acquired ...................................... 124
8.9.1 Selling Your Company ............................................... 124
8.9.2 Surprise! Your Company Has Been Sold.................. 125
Case Studies .................................................................................. 127

9.1 Polymer Manufacturing ......................................................... 127
9.1.1 BASF: Using Breadth of Product Line
and Manufacturing Integration .................................. 128
9.1.1.1 History of BASF ............................................ 128
9.1.1.2 The Effect of Verbund (Integration)
on Product Line ............................................ 130
9.1.2 Asahi Kasei: Targeted Technology............................ 131
9.1.3 Victrex Plc: A One Product Company...................... 132
9.2 Compounding ........................................................................ 132
9.2.1 LNP Engineering Plastics: Global Compounding..... 134
9.2.1.1 LNPs History................................................. 134
9.2.1.2 LNPs Business Strategy: Focus
on Customer Needs...................................... 135
9.2.1.3 Manufacturing Expansions ........................... 135
9.2.1.4 Regional Management, Globally
Coordinated................................................... 136
9.2.1.5 Patented Technology for Marketing
Strength.......................................................... 136
9.2.2 Modified Plastics: Regional Compounding............... 138
9.2.2.1 Using a Time Zone against Larger
Competitors ................................................... 138
9.3 Distribution............................................................................. 139
9.3.1 Polymerland: Integrated Distribution ........................ 139
9.3.1.2 Using the Internet......................................... 140
9.4 Processing............................................................................... 140
9.4.1 Nypro: Fewer Customers Equal More Sales............. 140
9.4.1.1 How a Small Molder Became a Big One... 141
9.4.2 Certified Thermoplastics: Niche Processing ............. 142
9.5 Equipment .............................................................................. 143
9.5.1 Husky Corporation: Molding Systems ...................... 143
9.6 Common Threads .................................................................. 144
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xvii
10 Summary ....................................................................................... 145

Bibliography......................................................................................... 147
Index ...................................................................................................... 149
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Chapter 1
Introduction
1.1 Why a Management Book for the Plastics Industry?
A great many excellent books on management are written from a general
standpoint but none appear to deal with the specific conditions of the plastics
industry. The plastics industry became a major part of the world economy
during the last half of the 20th century. In the United States, it is the fourth
largest sector of the national economy. Although the extensive industry restructuring that began in the 1990s led some to believe that plastics finally had
become a mature business, this is not an accurate characterization. No industry
that normally grows at multiples of the gross domestic product (GDP) and
finds new uses virtually every day meets the classic economic definition of
maturity, which is something that has reached market saturation. Nevertheless,
the plastics industry is being affected by the globalization of competition and
the unusually deep, prolonged, simultaneous worldwide economic slowing
that began in 2000, but these are conditions affecting nearly all manufacturing
industries. Continuing fluctuations in feedstock costs and deflationary pressures
on selling prices of materials are putting heavy strains on profit margins, in
addition to the characteristic cyclicality that has been the bane of both the
chemical and oil industries for many decades.
Indeed, the plastics industry is no longer a specialty business overall, and
some segments have become commodities. In fact, restructuring is being driven
by the transition of a number of former specialty segments into semi-commodities. Management of each of these types of segments and the transitions
between them presents a number of challenges that differ significantly, as
well as differing from those found in truly mature materials industries that
grow at the GDP rate or less. This book tries to highlight these differences
and how to deal with them effectively. Other plastics industry management
issues that differ importantly from more general treatments of management
topics include the foundations of industry segments, the way product and
1
process technology defines the business one is in, organization and staffing,
and the effective use of patents and trade secrets. Some more general management issues are also included to present the plastics concerns in a seamless
matrix, as well as to indicate my point of reference.
Management is as much an art as it is a science. Although one can and
does measure just how successful the management of an enterprise has been
via financial analysis, the building blocks of the management process that
produces these results are human relationships, which cannot be reliably
quantified. Even so, a number of management principles can be applied with
a reasonable expectation of results. One may discover these principles and
when to apply them through trial and error, or learn from the experience and
insight of others. The book will endeavor to explain which management
techniques generally work and which do not, based on the observations and
experiences of many managers in the plastics industry. While most of these
techniques are essentially timeless, the impact of such relatively recent
advances as globalization, the Internet, and information management is incorporated into the picture. The emphasis is on the practical and the applied,
rather than the theoretical.
Benjamin Franklin wrote in Poor Richards Almanac, Experience keeps a
dear school, but fools will learn in no other. To add to that thought, the
most expensive mistakes are those made by senior executives. This book will
try to point out how to avoid making more egregious errors without becoming
paranoid about making mistakes. It is surprising but readily observed that
some specific errors seem to be repeated over and over again in the plastics
industry, mainly in the areas of acquisitions, but also in transitions from one
type or size of business to another. It would seem that most of these seeming
oversights stem either from ignorance or from oversized management ego.
The most common or outstanding lapses will be analyzed in sufficient detail
so that you, the reader, can have the benefit of someone elses tuition bill.
However, this exercise is not conducted for the purpose of holding anyone
up to ridicule, because everyone makes mistakes in life. The authors expectation is that you learn from your mistakes as well as those made by others
and do not repeat those mistakes blindly. As George Santayana told us, Those
who cannot remember the past are condemned to repeat it.
The plastics industry is founded on the bedrock of science and engineering.
Those who work in this industry are, by and large, scientists and engineers
who have learned the enormous value of the scientific method and to apply
it to all aspects of their work. The scientific method calls for the thorough
testing of a hypothesis both to prove and to disprove it before communicating
the findings to colleagues for comment and criticism. Indeed, a hypothesis
cannot be considered proven until other scientists and engineers have been
able to duplicate those same results through independent testing. The objective, in all cases, is to establish an explanation of a finding and also the limits
of the understanding of those findings. The scientific method can and should
be applied in management wherever feasible, recognizing, of course, that the
human factor will introduce variables that cannot be controlled. Therefore,
results may be reproducible, say, only 70 times in 100 tries, but never 99 out
Introduction
of 100. It is critical to distinguish between assumptions based on anecdotal

data and the results of scientifically designed experiments to ensure that
controls have been used, that the number of data points is statistically meaningful, and that the results can be duplicated. This approach applies to lessons
learned from experience, most certainly. Anecdotal experience can be very
misleading and must be verified insofar as possible. Too often, a faddish
management or personnel technique has been adopted because a single or a
few prior uses of it appear to have yielded positive results. Wishful thinking
is no substitute for the scientific method, under any circumstances. I have
made it a point to apply these principles as much as possible before recommending management tools based on my own experience and that of others.
1.2 Management as a Career

A professional (e.g., an engineer or scientist) should be certain that he or she
(these pronouns will be alternated as the book proceeds to avoid cumbersome
reading) really wants to become a manager before taking the plunge; doing
so means quite a change in ones work life.
First of all, unless you really enjoy working with other people, do not even
think about a career in management. All of your results will be accomplished
by others, whom you must train, motivate, and evaluate. If this is unappealing,
then you will neither enjoy being a manager nor will you be a very effective
one. Managers delegate tasks to others rather than doing those tasks themselves. This frequently means learning to live with work done to less perfect
standards than if one had done the work personally. It also means that you
may need to give credit to subordinates for your own ideas, in order to
motivate them.
Second, being a manager means a major shift in the nature of ones work.
Most professionals take satisfaction in seeing a number of individual projects
through to completion, whereas a managers job is continuous for the most
part, with few defined starts and finishes other than those set by the arbitrary
dates of a fiscal year.
Third, being a manager will demand a personal commitment of much more
than 40 hours per week, especially in start-up or work-out (on the verge of
or in bankruptcy) situations. You will often be obliged to travel regularly,
perhaps two to three days a week, and to catch up on your reading on nights
and weekends. However, under normal conditions, it has been my own
experience, as well as that of many others, that something is wrong with the
approach of managers who consistently work more than 60 to 80 hours per
week or fail to take regular vacations. Their problem likely results from one
or more of the following:
Doing their subordinates tasks for them (micromanaging)
Immersing themselves so deeply in details that they have trouble seeing
the overall picture of their company and the future direction charted
Failing to prioritize their objectives by making every task of equal importance
Failing to limit their list of objectives to those that are critical to success
and can be done only by the manager
Seeking out and accommodating every point of view or splitting the
difference between them, rather than deciding on a single course of action
and carrying it out
Not being competent to handle the work
A combination of the above
A manager also needs to maintain a healthy family life, as well as make

time for community involvement. For most people, their families are the most
important focus of their lives. It is virtually a clich that someone on his
deathbed is unlikely to bemoan not spending enough time in the office! As
in most things in life, moderation and balance are the keys to success.
Community involvement has at least two dimensions. The first is personal
and what most people think of: charitable, religious, or other service-oriented
activities. This is something in which we all should participate, in some
measure, as responsible members of our communities. It is part of the balance
in life just mentioned.
The second dimension is business related and most certainly not to be
taken as a casual add-on: acting as a community liaison. Companies in the
chemicals and plastics industries are under constant fire from environmentalist
and other activist groups, many of whom are simply anti-business. Fortunately,
most of the materials used in the industry are of low toxicity which, of
course, does not relieve management of its obligation to operate a safe
workplace. It is essential that management be a positive, visible factor in
community relations and the concerns of its citizens. Remember that a number
of your employees are also likely to be members of the community. You owe
them the opportunity to feel proud of where they work and what they do.
A proactive approach to community relations will establish a reservoir of
credibility and goodwill that will help your business to grow, not to mention
coping with activists attacks over the issue du jour. Most importantly, it is
the right thing to do; the surrounding residential community should know if
any hazards to their well-being could result from an accident or improper
operation at your plant and how you will handle such a situation, and they
should have a first-hand opportunity to assess your credibility in regard to
your assurance that you will take the proper steps immediately under such
circumstances. Needless to say, you must ensure that the means exist to deal
with emergencies, and that they will be utilized. In the minds of members of
the communities, emergencies can even include the emission of unpleasant
(not necessarily toxic) odors. More than one company has tried to pass off
an occasional stink as just something that should be accepted as the price of
living near a plastics plant and then been set upon by regulatory authorities
and attacked in lawsuits as a result of managements apparently cavalier,
arrogant attitude. On the other hand, if activists employ bad science and
attempt to play on the fears and ignorance of the community about what the
company does and its potential for endangerment of the community, management must be willing to stand up and objectively rebut any misinformation,
Introduction
point by point, without responding to personal attacks in kind. The community

may yet believe those attacks if management has not previously demonstrated
and communicated the nature of its business and the precautions taken (such
as full compliance with all applicable government regulations, Responsible
Care standards, and ISO 14000 environmental standards or putting into place
functioning community liaison committees) to ensure safe and communityfriendly operations. Losing money is not the only way to be put out of business.
Depending on economic cycles, your employer, and your personal goals
and achievements, you might expect to move into first-level management (past
supervision) perhaps 5 to 7 years after entering the industry. Further moves
up the ladder may come at intervals less subject to prediction and may require
going outside your current firm. The best opportunities are often with relatively
new companies, particularly ones that have a new technology. These situations,
however, also have the most risk. The best time to take such risks is before
you have worked more than 10 to 12 years in the industry, particularly if you
do not see any opportunities where you are to move up in the near future.
Later in life than that, it can be more difficult to find the position you want
or to recover from a choice that does not work out. If you are not getting
exposure to different functions within the company at a managerial level,
discuss the situation with your supervisor. If the company cannot or will not
find such opportunities for you, this is another reason to change employers.
When I first moved from middle to senior management, the company was
in a financial crisis and a major change in company direction had to be made
immediately or the company would fail. A number of managers get their start
under somewhat similar circumstances another manager has made a mess
and it is yours to clean up now! You may or may not get a lot of help and
be offered a bewildering (and likely conflicting) array of solutions, but ultimately it will be up to you and you alone to decide how to solve the problem.
If you succeed, the credit will, and should be, shared by you and your team.
If you fail, be prepared to accept the major share of the blame alone. This
may not seem completely fair, but it is the nature of being a senior manager
and you had best be prepared to accept such judgments if this is to be your
chosen career.
It is also wise to view a career in management as a series of stepping
stones. No one should ever contemplate that his current position in management or with a company will last a lifetime. Not only are the days of lifetime
employment gone forever, but other good reasons exist too. Professor William
Meldrum, my college chemistry advisor, once told me that a good chemist
changes fields every ten years, and I have found that to be a maxim of great
value in the course of my career, as well as from observing the careers of
others. After ten years in a particular discipline or position, learning genuinely
new things becomes increasingly infrequent, as does making more and greater
contributions. When one becomes stale, it is time to move on. Change can
refresh, purge, and renew those who embrace it. It sweeps away those who
resist it. Always seek out new and greater challenges to meet, no matter what
your age or status.
A successful career as a manager can and should bring financial rewards,

but it will be a glass half empty if you do not find satisfaction in something
more than money. You can find great satisfaction in bringing a team together,
challenging it to achieve high goals, and seeing it reach them. My greatest
sense of accomplishment as a manager has come far more from helping many
different people to succeed and find fulfillment in their jobs while creating
thousands of satisfied users of my companys products and services, than from
any financial rewards (although, to be sure, I never turned any of these down).
While one presumably could do this in any industry, the plastics industry has
such a broad and diversified involvement in the economy that there is never
a chance to be bored by the same old thing, day after day. Very little in the
world of plastics is not new and exciting, all the time.
Being a chief executive officer (CEO), however, should never turn into an
ego trip. CEOs who make themselves the story of a company are dangerous
to the well-being of the company. Have you seen such a CEO buy a company
jet in which to travel, although the companys sites are in locations served
by scheduled airlines? Has such a CEO installed an opulent office with costly
artwork? The primary interests of these CEOs have diverged from those of
the company and their subordinates. Beware when the boss face is on the
cover of one or more business magazines; the team approach has been lost
when the boss is taking credit for what the team has done. The best CEOs
are not interested in promoting themselves but in promoting the company
and the team. The best CEOs do not spend money on their own gratification
but on what helps the company and the team succeed. The worst types of
CEOs usually have a pattern of using people, in the unpleasant sense of the
word that is, taking credit for the success of others and passing off blame
for their own failures. If you find yourself working for one, get your rsum
ready you will need it sooner rather than later.
Many plastics companies are small, entrepreneurial firms where the founder
hopes to see his children work for the firm and eventually manage it. This is
a natural ambition, and the children of such founders have a potentially
wonderful opportunity presented to them. However and this is a big
qualification the emotional fit among parent and children must be such
that all will be comfortable working with one other. Will the siblings get along
or will there be resentment if the family talent turns out not to have been
spread equally? How much independence is the parent willing to allow the
children to make their own decisions? In my observations, these problems are
greatly exacerbated if the children go right to work for dad or mom directly
out of school. The best way to reduce these natural frictions is for the children
to go to work for another firm, where they can gain experience away from
the parent and develop self-confidence in the process. It is difficult for children
to mature and acquire a sound sense of their own self-worth and competence
without some career experience in the world apart from their parents. Once
they have this, and it should take a period of perhaps 5 to 10 years, they
ought to be able to move into the family business and begin making a
contribution right from the start. The other employees, as well as the parent,
will respect them more for having earned their spurs elsewhere first. One
Introduction
may often observe that the second generations are usually successful in
carrying on family businesses but the third generations are less apt to show
interest and more prone to sell it.
One myth about successful managers deserves mentioning, if for no other
reason than to refute it. It may be best known from Leo Durochers famous
line: Nice guys finish last. This is really just a variation of the fiction that
managers get more results through fear and intimidation than by being nice.
Frankly, this is nonsense. While it is true that fear and intimidation will work
(for a short while), it is also true that both subordinates and managers will
burn out quickly in such a work environment. This philosophy might be a
holdover from a medieval army command mentality that forcing the troops to
storm the battlements was best achieved by making the foot soldiers understand
that their chances of survival, however slim, would be better by attacking the
enemy than being shot or stabbed from behind by their own officers. The
record shows that there are plenty of nice guys who finish first (because they
are good managers). The usual mixture of human personalities found in
management positions ensures that both kinds will be present. Managers who
cannot focus on the long term are not thinking of the best interests of their
companies, stockholders, employees, customers, or even suppliers.
1.3 Six Things Management Must Do

A great many opinions are offered at business schools and by industry
executives about the proper functions of management. My observation on this
critical subject is that management must execute six primary responsibilities
in order for a business to succeed:
1. Management must organize the business to meet market and customer needs.
2. Management must recognize and manage change.
3. Management must develop company goals and get everyone onboard with
the plan.
4. Management must continuously appraise subordinate performance and
provide positive feedback while not micromanaging those same personnel.
5. Management must lead by example while demonstrating the highest levels
of honesty and integrity.
6. Management must ensure that the business is increasingly profitable. This
means taking the necessary steps to be certain that sales are made at
profitable prices, new products are always under development, customers
are served, costs are controlled, and all assets are fully and gainfully
employed. While this may sound laughably obvious, it is absolutely astonishing how many businesses fail because management allows itself to be
distracted by other considerations, such as increasing market share without
concern for profitability, being a technology pioneer regardless of cost, or
building an overly large staff during upswings in the business cycle (which
must be cut back during the downswings).
Lets examine these guiding principles in more detail.
1.3.1 Organize the Business to Meet Market and Customer Needs

No business can exist without meeting market and customer needs. And, by
the way, the difference between a market and a customer is that a market is
made up of a number of customers with similar needs. Supposedly, monopolies
can ignore markets and customers without being hurt. Even a genuine monopoly (which, as Peter Drucker says, is as mythical a beast as a unicorn, save
for politically enforced, that is, governmental, monopolies) would sooner or
later find its offerings supplanted by less expensive, more effective alternatives
from others. The idea of heaven on Earth for some managers would be to
sell out the capacity of their plant to a single customer and then play golf for
the rest of the year. Sorry, but that is one dream that will never come true.
Even if it did, it would likely be followed by hell on Earth as soon as the
customers business declined or a competitor took away the business or a
myriad of other things happened, all just because the supplier did not want
to deal with reality. What is that reality? It is that a good manager must be a
bit paranoid, for all of those reasons just cited above. A manager would be
grossly derelict if he permitted the companys well-being to depend on a
single customer or market segment.
At the same time (notice how balance keeps coming up) it is essential that
the companys business be balanced and not so highly diversified as to lack
any real focus. Focusing on a limited number of market segments is highly
desirable because this leads to an in-depth knowledge of these segments. This
knowledge, in turn, allows more effective business planning with accompanying productivity gains that improve profitability.
You need to organize your business around the concept of delivering what
the customer needs (not necessarily wants), where and when the customer
needs it, at a cost that will allow you to price competitively but show better
than average profitability. The business must also be organized to replace
customers who fall by the wayside and to gain new ones in the same or
related markets. The company must be organized so that its various functions
work together to determine what customers want, make or get those items,
deliver them on a timely basis, and have money left over after collecting and
paying bills. The company must be staffed by competent, motivated professionals who operate as a team, that are led not bossed by management
to be customer focused.
The worst error management can make is to become so engrossed in the
process of managing that it mistakes the process itself for results. Results are
achieved only when customers buy your products at a profit to you.
1.3.2 Recognize and Manage Change

No business ever operated without encountering change. No business is ever
protected from change. Change takes many forms. It can be internal, as a
result of transition from an entrepreneurial business culture to a managerial
one, the effects of growth or contraction, or the impact of an acquisition or
divestiture, to name but a few causes. Change can also be due to external
Introduction
factors, such as the emergence or disappearance of competition, certain

markets or customers, new technologies, government regulation, or environmental concerns. Management must be ever alert to recognize and adapt the
enterprise to such change. This involves being both proactive and reactive,
depending on the situation.
Temporary changes, such as the ups and downs of industry economic
cycles, must be incorporated into your business plans as soon as they become
apparent. Management must be alert for early signs and make adjustments as
needed. More basic change requires a more basic response.
What are the warning signs of major change? Some are obvious, such as
those mentioned above: the emergence or disappearance of competition,
markets, technologies, etc. These are not difficult to notice but require some
investigation to analyze how and why the changes are taking place. One
should never operate on the basis of assumptions, because important changes
in the direction your business is headed may be missed if the changes are
dismissed as accidents or of no consequence for your business. A company
is more likely than not to be caught by surprise if its marketing efforts are
insufficiently focused. It is a companys market focus that provides enough
understanding of trends within one or more market segments to help management foresee when and what changes are likely to come about and to
understand them when they do.
Did a new competitor come into being because someone has discovered
new technology or are you not covering the market adequately?
Did a competitor disappear because it was undercapitalized or is the market
itself shrinking?
How will a new technology affect your business and why did your company
not come up with it first?
Are new environmental regulations the result of something stemming from
industry-wide problems, your problems, or weak community relations on
your companys part?
Have your customers stopped using your product because they are buying
from a competitor, have they removed your product from their design, or
they cannot compete against other firms, or is the end-use market your
customer supplies in decline?
Have new customers or markets appeared because you were lucky or
because you worked to develop them, and are you prepared to supply them?
Many forms of change are gradual and therefore not obvious. These are usually
internal, such as the effects of growth (or the lack of it) on the company
culture. One should be regularly looking for telltale signs that they are reaching
the point that they require action. In the case of growth effects, the signs can
include declining sales, excessive late product shipments, low employee
morale and high turnover, quality problems, infighting, and turf wars between
company departments. Management must deal promptly with these problems
before they damage the company, attacking underlying causes as well as
dealing with the symptoms.
10
Often, reorganization is called for and possibly a redefinition of the companys mission. All of these situations also involve the five other responsibilities
of management.
Management must be alert to distinguish between genuine changes in the
business and those that appear to be happening because everyone knows
that they are taking place. It is not unique in the long history of business to
find people swept up by fancied and imagined changes that required specified
actions, and the problem is particularly alive and well today. When it seems
that every company around you is restructuring, it takes courage to recognize
and state boldly that your company may not need to do so. Do not get caught
up in fads. By the time a technique becomes a fad, its principal usefulness
(usually nothing more than shock value) is likely to have passed. The hype
surrounding the advent of e-commerce is a good case in point. E-commerce
was introduced a few years ago as something every company must embrace
or go out of business. This quickly proved to be false, but a number of people
were caught up in the hype and lost a lot of money before discovering that
it was a concept long ahead of its time. People in business cannot afford to
ignore reality in favor of their fantasies for long. Reality seems to have a way
of catching up much more quickly with businesses than it does with some
other endeavors.
1.3.3 Develop Company Goals and Get Everyone Onboard

with the Plan
Developing company goals and a business plan is an exercise in leadership.
Top management must determine just what business the company is in; this
cannot be delegated. The definition of the companys business then becomes
the target of the companys goals, but goals do not have to be defined solely
by top management. To the contrary, it is critical to success to get the input
of subordinates and to use this input wherever one can when developing
goals. It is the responsibility of management to exercise its judgment as to
how much of this input to use, not just to put together an anthology of every
idea submitted by subordinates. Management must remember that it has the
final responsibility for goal setting. Why? Because it is impossible to accommodate every subordinates ideas in one set of simple, practical goals critical
to the companys growth and health. Companies are financial organizations,
not social ones; they are not democracies. H.B. Swope said it best: I cannot
give you the formula for success, but I can give you the formula for failure,
which is: try to please everybody.
Goals are the what and business plans are the how. The input from
subordinates should be much more substantive in developing plans than goals.
Good management delegates authority to execute plans to the lowest appropriate level (bottom-up planning), and it is appropriate that the people who
will actually do this are the ones who have the most input about how it will
be accomplished. Once goals and plans are in place, then regular progress
Introduction
11
reviews (e.g., monthly) are essential. More detail on business plans is contained
in Chapter 5.
The goal setting and planning of subordinates are often best when done
from the bottom up within the framework established by management, including stretch goals. People who have some say in the development of their
goals and plans, will usually accept them far more readily than if they were
imposed from above. When someone cannot or will not accept reasonable
goals and plans, then it is time for that person to move on to another company.
Life is too short for anyone to continue to work in a place where they are
unhappy and creating dissension. That goes for management, too. If you are
fundamentally unhappy with your own situation, then you cannot do your
job properly and need to make a career change.
Remember that most people respond to what they perceive to be their
own self-interests. There is nothing immoral or shameful in this; it is a normal
fact of life. If people do not look after their own interests, it is unlikely that
anyone else will. You must show them that working as members of a team
toward common goals is indeed in their self-interest.
1.3.4 Continuously Appraise Performance and Provide Feedback

A leading cause of many small business failures is the inability of the boss to
delegate authority to subordinates (e.g., micromanagement). It goes on in
larger businesses too, but the sheer inertia of bigger firms makes it easier for
this defect to be masked for awhile before it has overtly damaged the business.
Micromanagment is usually a sign that a manager is in over his head or has
such a strong compulsion to control every aspect of a job that he is unsuited
to the position he is in. A manager is paid to supervise subordinates work,
never to do it for them. Requiring periodic progress reviews tends to cut down
on the perceived need for micromanagement. Also, managers at all levels
need to accept that there is commonly more than one right way to reach
objectives.
Note that one can delegate authority, but only share responsibility, in the
sense that the boss is ultimately responsible for everything below his level
and within his department in an organization. If something goes wrong, a
boss must hold her immediate subordinates responsible to her for their actions,
but he cannot attempt to hide behind those same subordinates if his boss is
unhappy with what happened. A boss should accept responsibility for the
error and then fix it properly and promptly.
How does a manager delegate authority? First, you have to establish an
understanding with each of your subordinates about the meaning and scope
of policies, both yours and those of the company. Then set broad limits within
those policies (and within your own authority limits) for your subordinates
to take action without necessarily getting your permission first. Nevertheless,
delegating means entrusting, not abdicating. You must keep informed as to
how the subordinates are carrying out their duties and what results they are
obtaining. The least intrusive way is via weekly verbal reports a well-run
12
meeting that lasts less than an hour is a good way to supplement regular
informal brief conversations plus brief monthly written reports. An electronic
office database can be useful in keeping track of what is happening within
the company. Help your subordinates to develop a sense of when policy
guidance is insufficient and to come to you for help, but otherwise to handle
matters on their own while keeping you informed. Learn to coach your
subordinates, not to bark out orders. Direct orders are necessary on the
battlefield when lives depend on immediate, unquestioning obedience, but
they are appropriate only under rare circumstances in a business setting.
Positive feedback is an essential part of the process. Make sure you tell
subordinates when they are doing things right (use a did this well/do this
differently approach when giving feedback). Provide such feedback whenever
subordinates give you reports on something substantive that they did. An
occasional error is a necessary part of gaining experience, so lighten up when
this happens. Do not knowingly let a subordinate make a major mistake, of
course, and do not allow subordinates to keep making even minor errors
without sitting down with them to identify the reasons and then developing
actions plan to fix the problems. This is more than a matter of simple fairness;
it is essential to effective personnel utilization. If an individual cannot make
the necessary adjustments to meet the assigned goals and the company
standards for the job, then a clear, written plan must be put in place, with
the employees participation, that not only identifies what has to be done and
when, but also makes it clear that failure to execute on a timely basis will
lead to employment termination. There is absolutely no excuse for the sudden
termination recommendation of employees with years of satisfactory performance reviews in their records. When this happens, management itself has
a serious performance problem. If the managers involved have caused such
a situation to happen by being previously unwilling to talk to subordinates
about performance problems, then the managers themselves have created the
situation and cannot be held blameless.
1.3.5 Lead by Example

One thing the U.S. military teaches that is also true in business is that the
boss must lead by example. The boss can never hide behind a do as I say,
not as I do philosophy. Any boss who tries this will immediately and
irretrievably lose all credibility and respect among the subordinates. As
described earlier, the boss must always accept responsibility for the actions
of subordinates; this is an act of loyalty that should and will earn the respect
and loyalty of every subordinate worth their salt. Respect cannot be commanded or even deserved. It can only be earned. Furthermore, managers must
also back up their own management. If a manager is disloyal to his own boss,
it will not be long before that managers subordinates lose their loyalty to
him. There would have to be some extraordinary reasons for you to continue
working for someone whom you do not trust.
Introduction
13
Why this emphasis on loyalty? Because trust is based on loyalty. Any

organization that lacks trust is doomed to failure, because no one in it can
ever be sure what the motivations of others are or the accuracy of the
information they are receiving. Loyalty is insufficient by itself, however.
Managers have to demonstrate every day that their lives are ordered by a
strong sense of right and wrong, that their personal integrity cannot be
compromised, and that they are invariably honest in their dealings with
everyone with whom they come in contact. Management cannot run a sound
business by conducting affairs to stay just within the law or by always taking
full advantage of everyone over whom one has power. The need for loyalty
and trust also demands that you remove those people from your organization
who cannot be trusted. Furthermore, managers must also demonstrate consistent professional competency; people easily see through bluster masquerading as knowledge.
Some readers will say to themselves that this sounds like a level of
perfection that does not exist in the real world. Not true. You would not
accept an occasional shortage in your paycheck, would you? Subordinates are
entitled to expect the same kind of consistency. Yes, some bad apples can
be found in every barrel, but they cannot and should not be used to define
all the rest of the apples. One of the most transcendent elements of human
society is to aspire to ideals that may not be attainable 100% of the time but
nonetheless are very much worth striving for 100% of the time. True character
is shown best when times are difficult and integrity matters most, not when
times are easy.
1.3.6 Ensure That the Business Is Increasingly Profitable

Do not ever apologize for making a profit in your business and wanting to
make a bigger one that is your job. Even Samuel Gompers, the 19th-century
American labor leader, said that the worst thing that could happen to an
American worker would be for the company that employed him to lose money.
One of the more annoying things about socialists and other anti-capitalists is
their constant characterization of profit as something evil. They depict private
business ownership as akin to organized crime, as though employees, suppliers, and customers have been forced to do business with companies at the
point of a gun. These critics never describe profits as normal or acceptable,
but always as obscene or excessive. One is led to believe, then, that businesses
should be run at breakeven (which is like balancing on the edge of a knife)
or, even better, at a loss. As the wreckage of the former Soviet Union and
Eastern European countries testifies, the idea that businesses should not be
concerned about profits and losses cannot work for any length of time without
a great deal of economic and social damage. Sooner rather than later, payrolls
and vendors bills have to be met. Even nonprofit companies must make take
in more money than they pay out, to survive; this is called a surplus rather
than a profit, but there is no real difference.
14
In a free society, profitable companies pay their employees well, sustain

a number of vendors, satisfy a number of customers, fulfill stockholders
investment objectives, and pay (actually collect) taxes to local, state, and
federal governments. Companies that are unprofitable and cannot meet their
bills are usually sold (often in pieces) or liquidated. In any event, a great
many people lose their jobs in addition to the manager, and the stockholders
investments suffer. This is the ultimate test of management. If you cannot run
your company to make money, you will not get to run your company for
very long.
Are there no exceptions to this rule? Remember those Internet companies
that were seemingly worth vast sums to the stock market if their sales
continually rose, even if they lost money (as in cash burn)? As we have
seen, those companies found out that when their promise of finding earnings
in those sales revenues was not realized quickly, their stock crashed and they
were acquired or liquidated. The long-term value in e-commerce or any new
concept can look very appealing as long as the actual results are still veiled
in the mists of the future. However, the plastics industry is not the Internet!
The stock market, banks, and even venture capitalists hold our industry to a
demanding standard: it is absolutely unacceptable to lose money for any length
of time. To the contrary, companies in our industry are expected to show
rising earnings and improving returns on investment, with only grudging
acceptance at best of any diminishment in this progression during economic
downturns.
Indeed, one of the major reasons that the stocks of chemical and plastics
companies do not command higher levels of valuation in the stock market is
that these industries have a long, sad history of boom-and-bust cycles. Todays
management always has the opportunity to break with this well-earned stereotype, but it must choose to do so. Sales growth or maintenance is important
no company can maintain profitability based on cost control alone if sales
are falling. But sales must be profitable sales and management must be
prepared for the downside of a business cycle as well as the upside. One
hopes that industry managers do not fit Talleyrands description of the Bourbons: They have learned nothing and forgotten nothing (Ils nont rien appris,
ni rien oubli).
Ever hear the old joke we lose money on every unit sold but make it
up on volume? It never ceases to amaze me how many managers think they
can sell products at less than full cost as long as they recover out-of-pocket
costs and make a contribution to overhead. In the oil industry, this is called
selling incremental barrels. The big hole in this idea is that all those customers
who are paying full price are bound to discover eventually that they too can
buy the same product for less. Soon the company will find that it is now
selling mostly incremental barrels instead of standard ones and losing money
on most of its sales. Price alone is always a miserably unimaginative choice
for an inducement to place an order. Management must ensure that any
program to increase sales does not rely on offering the lowest price, because
it runs a strong risk of violating the basic rule of not making a loss. Successful
selling depends on bringing value to the customer that goes beyond price.
Introduction
15
This and the earlier comments in this vein will be dealt with in more detail
later in this book.
If your company loses money for a month, with no foreseen reason for
it, you should establish the cause and correct the situation as soon as possible.
If your company loses money for a quarter, then you had better rediagnose
the problem and fix it immediately, because you are unlikely to have the
luxury of another quarter of losses. Your boss will probably decide that you
are not up to handling the issue and replace you.
Now this is certainly not to say that no holds are barred where profits are
concerned. Running a business is just like living your life you must respect
the law and deal ethically with your vendors, customers, employees, and
stockholders. Managers who break the law usually wind up in court, and
managers who treat others unethically quickly get a reputation that harms their
business and their own careers. It may take a while, but people who are
always testing the limits will find them, although usually not until it is too late.
Being really profitable, in the top 10% of your field, requires that you
establish a leadership position in your line of business. A leader provides
products or services that customers recognize as being superior to those offered
by others in terms of value, and being willing to pay for them as such. This
does not necessarily mean that your company must be the biggest in the
industry or even in each product line. Sometimes being second or even third
will allow you to concentrate on some specific area, such as a particular end
use or a class of customer, where you can fully differentiate your offerings.
Being a leader means that you always have new, high-profit potential products
moving through the pipeline that will supplant the old ones when they become
lower profit commodities. It means constantly looking for ways to increase
the value of your company to its customers, in terms of service as well as
products. It means finding ways to differentiate your company from your
competition, both direct and indirect. Only when your company is a leader
can it increase profitability on an ongoing basis.
A number of scandals have surfaced recently over an old problem: certain
publicly held companies have declared bankruptcy after years of reporting
constantly increasing earnings. How could this be? It turns out that they used
questionable, if not fraudulent, accounting practices to hide losses or report
loans as sales revenues. It is an act of pure hubris for a CEO to promote the
companys stock by manipulating earnings in such a fashion that the company
appears to be always headed up in a smooth line. The plastics industry does
have cycles and it is simply not possible for a company to report earnings
increases every quarter or every year without some sleight-of-hand being
involved, even if it is legal. An honest and forthright presentation of financial
and operational facts, warts and all, is a far more sustainable policy that will
lead to the creation of respect and credibility among stock analysts and the
investing public. When earnings weaken, as they surely will at some point,
the companys stock will be much less affected if investors have come to
expect some normal variations or that the company tends to understate rather
than overstate projected earnings.
Chapter 2
Foundations of the Industrys

Segments
The key factors that form the foundations of each major industry segment
must be identified as critically affecting the future success of the business.
While some segments have one or more factors that coincide with those of
other segments, each segment has at least one factor that differs from another
segments factor in some way. These factors must always be at the base of
strategic planning and business operations or the company will lose its focus
and begin to drift. This is not a matter of concentrating on the customer;
rather, it is understanding just which elemental factors the company must rely
upon in the process of satisfying customer needs.
2.1 Polymer Manufacturing

Polymer manufacturing is a sector of the chemical and petrochemical industries
as a consequence of historical development as well as the need for vertical
integration. Virtually every polymer producer is a division of a larger chemical
or petrochemical company. Polymer manufacturing therefore must be analyzed
from the standpoint of these larger industries. When we speak of upstream
and downstream, we are using oil and chemical industry terminology that
defines basic feedstocks as the source, with production moving downstream
like a river. It follows, then, that if one is looking from a point along the river
toward the source, one is looking upstream. The production of polymers is
a chemical process, unlike most downstream polymer processing steps, which
are physical operations. Polymer manufacturing is the most capital-intensive
segment of the plastics industry, because the producer must often make
monomer(s) as well as polymerize, so that the minimum plant scale is typically
17
18
several orders of magnitude larger than for downstream processing. All of

these conditions must be considered in order to understand how to manage
a polymer manufacturing business, or just to understand how ones suppliers
operate their businesses.
2.1.1 Technology
The most important factor in being successful in polymer manufacturing is,
unsurprisingly, technology. Without state-of-the-art technology (including
equipment) to produce high-performance materials with consistent properties
at competitive costs, no polymer manufacturer can remain in business for
long. Lets restate these three critical elements of technology:
1. High performance
2. Consistent properties
3. Competitive costs
Every one of these legs of the polymer manufacturers stool is critical; without
each of them, the stool collapses. Management must ensure that the companys
technology is at least competitive or better, either through internal research
and development or through licensing, or a combination of both. Technology
advancements include both product and process development. New products
are vital to the growth of a company, but process improvement can make
any product more profitable or enable it to compete against lower cost
materials in new end uses, or both. Process improvement is also needed to
meet environmental mandates to reduce total waste generation as well as to
reduce the toxicity of waste generated. Process improvement may even offer
ways to modify the qualities of old products sufficiently to make them
significantly different from those made with the standard process technology.
Single-site (e.g., metallocene) catalysts are an excellent illustration of this point.
Polyolefins made with these catalysts can be tailored to specific end-use
requirements that will lead to increased market demand.
Patents are a vital part of polymer manufacturing technology. Not only do
they provide protection for costly research and development, but they also
offer a source of income from licensing, as well as a quid pro quo to obtain
access to others patented technology via cross-licensing. Unfortunately, owners of valuable patents must expect that at some point it is likely they will
be involved in litigation to protect their intellectual property. This is more
common in the U.S. than in other countries, owing to the differences in legal
systems. The first polypropylene patents were litigated for a period of more
than 20 years before a final resolution was forthcoming. The winning party,
Phillips Petroleum, won many millions of dollars in royalties as a result. The
subject of patents and other intellectual property is examined in more detail
in the next chapter.
Foundations of the Industrys Segments
19
2.1.2 Scale and Integration

One of the items mentioned earlier as a critical component of technology was
competitive costs. However, technology is not the only way to achieve
competitive costs; plant scale and integration also directly affect expenses
incurred in manufacturing. Commodity polymers in particular must be
produced in plants large enough to minimize overhead costs. Integrated, onsite monomer-to-polymer production is essential to minimizing costs by eliminating the expense of carrying duplicative inventories and of transporting
materials between sites. Integrated production helps to assure control over
critical quality and cost issues, as well as to avoid supply interruptions. Finally,
integrated production enables the producer to make a profit on each step of
the process, on a smaller investment than if each step was freestanding. In
fact, it is not economically possible to buy some monomers on the open
market, polymerize them, and then be able to sell the resulting polymer at
an acceptable profit.
Logistics costs and currency exchange considerations also make it desirable
to build integrated plants in various regions of the world in order to be able
to supply customers profitably wherever they are located. Polymer producers
in the United States commonly rely on monomers derived from natural gas,
particularly those making polyolefins, although nylons, polycarbonate, polysulfones, and polyphenylene sulfide are all dependent on benzene derived from
crude oil. In most other countries, crude oil is the principal source of all
monomers.
There are risks to integrated production, however. One risk is that a
production outage in one stage will shut down all stages. The way around
this, naturally, is to have backup inventories at critical stages of production.
A second risk is process obsolescence, which can be avoided by the company
maintaining its technology edge in each stage in the process, not just the one
that brought it into the business in the first place (e.g., polymerization). This
means a bigger research and development effort that pays off with continued
process cost improvements as well as acting as a defensive shield against
competition. A third risk is the bigger investment in an integrated plant vs.
the smaller investment in a non-integrated facility. The decision to put more
investment at risk must be at least partially justifiable by relatively low
probabilities of major changes in technology or shifts in the marketplace that
will make the investment, or a major part of it, obsolete.
Some examples of the desirable scale for some polymers can be gleaned
from press announcements of new facilities. In 2001, new high-density polyethylene plants were being announced to have capacities of 340K metric tons
(MT)/year, while plants with capacities of 115K MT/year were being closed
as uneconomic. The ideal has evidently not yet been found for polypropylene
(see BASF/Basell comments in Chapter 9). Others have said that consolidation
of the major polyolefin producers is likely to continue until only a few giants
are left in the world.
20
In addition to large, economical plants, polymer producers also need to

have a critical mass in terms of sufficiently broad product lines. Particularly
in engineering and high-performance polymers, a single material only very
rarely makes for a viable business. An examination of successful producers
suggests that three polymers appear to be the minimum for critical mass, but
even that number may be edging up. Exceptions to this rule of thumb for
product line breadth can be found, but they are very few in number. One of
them worth noting, polyetheretherketone (PEEK) producer Victrex PLC, is
described in Chapter 9.
2.1.3 Routes to Market

Traditionally, polymer producers have utilized direct sales, distributors, and
brokers as routes to the marketplace. E-commerce is a relatively new and
increasingly important channel that will impact these latter two routes. Producers must use all of these routes to satisfy a diversified customer base.
2.1.3.1 Direct Sales

Direct sales have the advantage of building and maintaining a manufacturerto-customer relationship that has minimal noise or signal loss in communications. Direct sales representatives can be used to build large accounts over
a period of time, something that is more difficult when using other routes to
market. Direct sales relationships with customers are the strongest and the
most reliable because the manufacturer is in direct control of the relationship
without being filtered through third parties. Also, more individuals become
involved through a direct sales business relationship than is the case with,
say, through a distributor; this helps to ensure that normal personnel turnover
will not suddenly end contacts on each side. Additionally, changes in the
marketplace are detected more rapidly and dealt with more effectively when
working directly with customers.
Many polymer producers today use experienced technical personnel as
account managers (the term sales representative is usually applied to junior
personnel), who are able to deal effectively with problems on their own as
well as knowing where and to whom approach in the company for assistance.
In line with the drive to minimize costs, such relatively expensive personnel
are used to call on only the companys largest customers. Smaller customers
are handed off to distributors. The dividing line for who will handle a customer
varies with the degree of commoditization of the material. For example, a
polyethylene processor that buys 3000 MT/yr might be a house account, with
smaller users being referred to a distributor, while a nylon processor who
buys 450 MT/year may qualify as a house account. Other attributes that affect
the decision on whether or not to designate a customer as a house account
could include a new line of business or sales potential where the company
has otherwise only achieved second-supplier status. Account managers seldom
21
have pricing authority but business managers would generally give their
opinions great weight in making their decisions. Differential pricing within an
industry can cause legal and business problems so that final authority on
prices must reside with one manager.
2.1.3.2 Distributors
Distributors and brokers have the distinct advantage of not being a fixed cost.
They also present a convenient and rapid way to move inventory off the
books and into the marketplace, to be sold to the myriad of small processors
that are very difficult for a manufacturers direct sales force to handle on a
cost-effective basis. Most polymer manufacturers have turned over all lessthan-truckload or even less-than-carload buying accounts to distributors. Producers do this not only because it is more economical, but also because they
can instantly access a much larger number of potential customers through this
channel than directly, and margins may be actually higher than those on direct
sales. The disadvantage of using distributors is that knowledge of the marketplace is more difficult to obtain and less complete.
2.1.3.3 E-Commerce
E-commerce is a form of order processing that replaces an inside sales assistant
using a telephone or fax with a computer. It does not replace outside sales
people. The computer is accessed by customers directly, modem-to-modem
(also called private network), or via the Internet. Using a computer does not
completely eliminate the need for inside sales by any means, but it does
reduce the number of personnel required, and it is more accurate. A computer
can also receive, compile, and analyze far more information than would
normally be the case with a telephone sale. While most e-commerce users
work through private networks, use of the Internet enables companies with
different information systems to work with each other without the necessity
of adopting common systems. Affordable software is now becoming available
that will also permit previously incompatible systems to link together via
private networks without the security risks inherent in using the Internet. In
effect, e-commerce is a logical extension of supply-chain management, which,
in turn, is a part of enterprise resource planning (ERP). At present, only the
largest polymer processors have the capability to use (and demand) the ecommerce route to their suppliers, but this will gradually change, as smaller
companies begin to utilize ERP programs that are user friendlier and less
expensive.
A major drawback to the use of e-commerce is the potential for hackers
to enter a companys system surreptitiously and steal, disrupt, or destroy data
and programs. While data security programs are being upgraded daily, no
system can be considered completely safe indefinitely. There will be an
ongoing war between hackers and information technology security teams for
a long time to come.
22
2.2 Compounding: Key Factors

Production of polymer is only one step toward creating a useful finished part.
Almost always, polymers require modification of their properties by incorporating reinforcements, stabilizers, fillers, colorants, and other additives to be
successfully used in more demanding applications. Compounded materials are
usually tailored to specific applications, and their production tends to be made
in relatively short runs. Although virtually all polymer manufacturers compound their polymers to some extent, they have seldom made highly specialized products in the past. Custom compounders make these latter materials.
Custom compounding, as a business, was first developed in North America
by entrepreneurs; it was years later before polymer producers began making
filled and reinforced versions of their own resins as well. In Europe and Asia,
compounding has been an integral part of the business of polymer producers
almost from the beginning, but independent companies eventually have
entered the market. One can even observe part-time compounders in some
Asian and European countries that run only on a periodic basis to satisfy a
few local customers. While this latter phenomenon is unlikely to become a
widespread pattern, it does seem to represent the ultimate in providing
customers with just-in-time shipments of specific compounds at the lowest
possible direct cost.
Over the years, a few large processors have tried compounding in-house
to make compounds for themselves on a captive basis. Most dropped the idea
after realizing that integration required duplicating most of what a compounder
does but without the same business base to pay for it. The principal captive
compounder today is Delphi, the General Motors automotive parts spinoff
company, which makes very large volumes of a few polybutylene terephthalate
(PBT) compounds.
2.2.1 Technology
As in polymer manufacturing, technology is a key factor to success in compounding. In particular, formulation technology is critical to finding and
holding customers. Compounders must be willing to develop and manufacture
special grades in the smaller volumes that polymer producers cannot or will
not undertake. Customers for special grades usually want them for one of two
reasons (often both):
1. Replace a more expensive material (e.g., a flame-retardant polystyrene to
replace an engineering plastic) or use a recycled product to replace a
prime one.
2. Provide a particular, even unique, combination of properties (e.g., low
friction and electromagnetic shielding or a specific stiffnesstoughness
combination).
Process technology is also important, and this usually involves the use of
twin-screw extruders in addition to single-screw extruders. While it is difficult
23
to beat the economics of single-screw compounding (a new twin-screw

extruder costs more than four times as much as a new single-screw extruder),
a number of compounds require the additional dispersion that is much better
achieved in a twin-screw extruder.
Much of compounding technology, particularly processing, is in the public
domain. In other words, the technology is widely known in the industry and
is the subject of published information, so that it cannot be considered
patentable or in the nature of a trade secret. However, unlikely or unusual
combinations of public domain technologies can be deemed to be trade
secrets. If this is the case, then a company can designate those portions of
its technology that qualify as trade secrets and take the necessary precautions
to treat it as such. This includes restricting access to the technology to a limited
number of employees (no outsiders allowed!), having those employees sign
secrecy agreements, and reminding those employees at least annually that the
technology is a trade secret and the intellectual property of the company.
Many compounders use the trade secret route to protect themselves against
employees leaving and using what they have learned by either joining a
competitor or setting up their own competing company. A few companies
(see Chapter 9) have patented their technology. While patents have the
advantage of being simpler to enforce in court than trade secrets, they do
have the disadvantage of transferring everything disclosed into the public
domain after their term has expired. Therefore, embarking on a patent program
requires an ongoing effort to continuously develop and patent improvements
on the basic technology, so as to maintain at least some form of ongoing
protection.
2.2.2 Supplier Relationships

While supplier relationships may not seem to be critical to some small
compounders, they are actually very important in achieving significant, sustained, and profitable growth. The largest single cost of doing business as a
compounder is raw materials. Therefore, a close working relationship with
one or more polymer manufacturers is key to obtaining a secure, long-term
supply of consistent-quality materials at an attractive price. Think of it this
way: for the most part, the market determines the price at which one can sell
products; therefore, a major factor in profitability is how well costs are
controlled, particularly the largest one materials. Polycarbonate is a good
example of the need for a long-term working relationship. It has been in tight
supply several times during the past decade, with a simultaneous run-up in
prices; at least one secure source of polycarbonate at a fixed cost is absolutely
essential to any compounder with a steady business based on this polymer.
Supplier relationships do not necessarily compromise the independence of
a non-integrated compounder. While such a compounder may have a favored
source for each base polymer, the compounder still has the option of offering
a compound based on any polymer, which is not the case for a polymer
producer. In principle, a compounder might be biased toward recommending
24
compounds based on those polymers where it makes the most money, but
in practice this is very rare. The compounder is much more concerned with
supplying a material that meets the customers needs at the best overall cost
than trying to push a product that may not perform as well, albeit more
profitable. The danger of losing the business altogether by promoting a secondbest product is too great.
2.2.3 Geographic Dispersion for Customer Focus

While most compounders start out with one location that serves customers in
the contiguous geographic region, eventually they find that growth will require
another manufacturing facility, located closer to distant customers. This is
because just-in-time (no stock) customers cannot wait for shipments overnight
and sometimes not even for more than half a day. The very largest compounders also find they must follow their customers all over the world and
build regional plants to serve these needs. The saying about politics that its
all local applies equally to serving customers. While some major customers
may buy globally, all of their plant sites must be served locally.
Once overseas plants are established, some technical capability must follow,
to qualify raw material sources, handle technical service needs, and handle
simpler new product development requests. This is how new, local customers
are gained, in addition to serving the local plants of established global
customers.
2.2.4 A Place for E-Commerce?

While e-commerce has not yet shown its full utility for the hallmark of
compounders, namely small users and specialty materials, it may yet have a
place in this segment. Software that permits customers to participate in the
fine-tuning of product properties is now emerging that will enable Internetsavvy processors and original equipment manufacturers (OEMs) to work
directly with the compounders development personnel. The resulting product
properties may then be turned into a formulation and scheduled for production
via the compounders internal computer network. All of this will likely take
a number of years to materialize on any significant scale, but the possibilities
are quite interesting. This is quite apart, of course, from e-commerce order
processing for established formulations.
2.3 Distribution: Key Factors

Distribution is an important route to market; almost all small processors buy
their materials from distributors because of the substantial minimum order size
requirements of polymer producers. Distributors smooth out disruptions of
the supply chain by stocking various grades of materials, enabling small
processors to minimize their own inventories and polymer producers to
25
maintain long production runs. Brokers are a small subset of the distribution
business; they usually buy and resell surplus stocks and non-prime-quality
materials rather than representing one or more specific manufacturers and
stocking their products. Brokers sometimes do not even take title to the goods
sold, instead receiving a commission from the party requesting the transaction.
2.3.1 Customer Relationships

Most distributors start out in business with several key customers, people who
the founder knows well enough to be assured that they will buy the products
in such quantities, prices, and degree of ordering regularity as to ensure a
profitable business. A sound customer base is an absolutely fundamental
requirement for any distributor.
As noted below, a relationship with polymer manufacturers and/or compounders will also add to the customer base. One difference here, however,
is that these customers are loyal primarily to the manufacturer/compounder,
rather than the distributor. Should the supplier relationship end, these customers will usually switch to another source of the suppliers products.
Therefore, the wise distributor will try to build a business relationship with
these customers that are on loan from the supplier, so that they remain loyal
for at least some of their purchases even if the supplier decides that the
distributor does not fit in their business model any longer.
The old 80/20 rule seems to apply overall to plastics industry buyers;
that is, 80% of product sales are purchased by 20% of the customers and vice
versa. The rule is modified a bit when it comes to the human need for trust
when dealing with another vs. the need for finding a bargain. Here we find
that perhaps 70% of purchases are made predominantly on the basis of
reliability, service, and delivery, and 30% are made predominantly on the basis
of price. That 70% is where a distributors important earnings are made. A
distributor earns a customers trust by delivering the right material on time
every time, delivering paperwork such as invoices, material safety data sheets
(MSDSs), and certificates of analysis that is accurate and timely every time,
and reacting to inquiries and problems immediately and helpfully. On occasion, this kind of reliability has enough added value to a customer to be worth
paying a price premium or at least giving the distributor the lions share of
business that is multiple-sourced. Old-fashioned schmoozing (entertaining
the customer) may help cement a personal relationship, but without the
foundation of reliability it can be very easily overturned by a competitor.
Distributors need to know what else their customers buy and, if feasible,
find a way to offer these additional products. This does not mean mindlessly
expanding the product line, but rather looking for opportunities to carry related
products that can be profitably sold to existing as well as new customers. For
example, if the customer is already buying brand X nylon 6 but also uses
brand Y polycarbonate, the distributor should try to establish a supply position
in brand Y. The cost of selling and shipping two products to a customer is
virtually the same as selling and shipping one product, so the additional
26
profitability is obvious. Purge compounds, used to speed up transitions

between different colors or materials in a molding machine or extruder, are
a favorite add-on for distributors looking for ways to increase sales to existing
customers.
Restructuring at polymer producers has led to cutbacks in technical service
for customers. Distributors must be prepared to take up the slack and provide
this support, usually in the form of helping to solve processing problems.
Technical service personnel do not have to be salaried employees, sitting
around waiting for calls for help. Many good consultants in this field can be
brought in on a case-by-case basis as needed. Consultants paid a retainer
are often willing to make themselves available on short notice to handle
emergency problems. Some common technical problems can be handled via
an automated telephone troubleshooting system or a fax-back system.
2.3.2 Supplier Relationships

A distributor without one or more regular supplier relationships is more
properly described as a broker. Supplier relationships are critical to continuity
and security of supply, customer referrals, and operating profit margins. A
distributor may start out with a number of customers; but to grow on a
sustained basis, a relationship with one or more suppliers is essential. In the
ideal supplier relationship, the distributor serves as a marketing and logistics
extension of the polymer producer or compounder. Most polymer producers
will refer all less-than-truckload customers to their distributors. Suppliers
provide product literature and training to distributor technical personnel so
they can provide product information and technical service to small customers.
Most importantly, suppliers provide a discount on purchases that can constitutes most, if not all, of the gross profit for a distributor.
The ideal supplier relationship is to be the exclusive distributor in a given
market, geographic or otherwise (the broader, the better, of course). The next
best is to be one of very few. For example, during the 1990s, Shell licensed
just three North American compounders to make and distribute its Kraton
thermoplastic elastomer (TPE) compounds, which was very nearly as good as
being an exclusive arrangement. A written agreement is preferred to an oral
agreement and is a requirement when the relationship has restrictions. Nonexclusive distribution agreements are the least desirable, but they are often
necessary to round out a product distribution line; it is common practice to
make oral non-exclusive agreements.
Commodity polymer distributors will typically repackage bulk resins for
customers who do not need to buy full railcar quantities. The distributor
receives railcar shipments from the polymer producer and either puts the
polymer into bulk trucks or into silos, where the polymer can be repackaged
in bags or boxes. This is an important function in the supply chain for small
and medium-sized processors. The distributor not only provides the desired
packaging, but also ensures continuity of supply at stable prices. Some
commodity polymer distributors even delegate less-than-truckload business to
subdistributors of their own.
27
2.3.3 Geographic Dispersion

Distributors typically grow from local businesses to regional ones. A few have
grown to be national or even international in coverage. It is difficult to grow
solely in a local area for long; therefore, geographic diversification of customers
becomes important to the continued growth of the business.
Another significant reason for geographic diversification is that some local
areas tend to be dependent for their commercial well-being on specific large
industries or companies. For example, Detroit is heavily dependent on the
automotive industry; Seattle, on aerospace (Boeing); San Jose (Silicon Valley),
on electronics. It is a rare industry that does not have some down moments
over the years. If the distributors home market is one of these cities, then it
should be doing its best to diversify its business base by developing customers
in other localities.
Suppliers and customers are more favorably disposed to work with
distributors that have broad geographic representation than those that are only
active in a few areas, and such representation is usually a requirement for
processors with multiple plant locations. This should never be a problem for
a distributor, as it is not necessary to own a number of warehouses. Many
perfectly adequate public warehouses can be very effectively and economically
utilized on an as-needed basis, without the need to own substantial real estate
assets. It is generally not a good idea, however, to allow a customer to hold
stocks and pay for product as used. Accounting and payment issues almost
always result from such arrangements and will sour the relationship.
2.3.4 Effects of E-Commerce

Business-to-business (B2B) e-commerce may yet have a significant impact on
distribution, but the effects to date have been minimal. Nevertheless, it would
appear that two possible adverse considerations are emerging:
1. Buyers may find that surplus stocks of commodity resins can be purchased
less expensively via Internet auctions than through distributors or brokers.
Although logistics, product quality, and credit issues may make this route
more the exception than the rule, the Internet may at least broaden the
number of suppliers that buyers can utilize.
2. Manufacturers may find that they can sell small quantities at better net
prices directly to customers via the Internet than through distributors. They
also find that e-commerce provides valuable market information that is
often unavailable through a distributor. The drawbacks to this route are
that the manufacturer will have to carry larger inventories and accept the
higher credit risks that often go with small companies, functions now
handled by distributors and compounders.
Both of these effects are unlikely to disturb the 70% of customers who buy
based on reliability rather than price, as mentioned earlier (at least for now),
28
but they may cause the 30% who do buy on price to bypass their traditional
distributor or broker.
2.4 Processing: Key Factors

Processors cover a wide range, from tiny, garage shops to billion-dollar
multinational companies and from custom parts producers to OEM-captive
operations. They include specialists in different types of processing, in particular classes of materials, specific types of parts or industries, etc. Some just
pass plastic through a machine, and some also make molds; others also
decorate parts and assemble them. Some have become complete contract
manufacturers, with an emphasis on plastics. However, several key factors
apply to all of these diversified entities.
2.4.1 Technology
The foundation of any processor is technology. A selected process or a series
of processing steps is used to transform polymers or compounds into functional
parts or even completed objects. Processes include injection molding, extrusion, blow molding, rotomolding, thermoforming, compression molding, and
some variations/combinations of the preceding. Processors must have at least
basic competence in the technology of the processes used or they will not
stay in business.
Many processors do more than make parts out of polymers and compounds.
Their technology base often also extends to product design, mold or die
design and construction, and secondary processing (e.g., assembly, decorating,
electroplating). These additional capabilities are important elements of broadening their customer base and improving profitability. These should never be
just me-too efforts, but should be every bit as cutting edge and high quality
as the basic processing equipment. Even something as simple as using the
proper type of resin dryer is critical in making quality parts from hygroscopic
polymers. Automation is another aspect of being a leader; just knowing what
to automate and doing it can be critical to product quality and reproducibility
as well as keeping manufacturing costs down. Mold design and construction
should be of particular interest to a processor, because a poorly designed or
fabricated tool will cause many production problems. It is better to have
complete control over these aspects of a job than to spend hours trying to
fix someone elses mistakes.

Competition is fierce among processors because there are so many. A close
working relationship with your customers is essential to survival, let alone
profitability. Processors may have one customer or many. For example, a
captive operation produces for its parent company. Proprietary molders make
29
products for a variety of customers. Custom processors may only work for
one customer, but the vast majority have a large number. The geographic
proximity of processors to their customers is often the single, most critical
consideration for customers who practice kanban, the Japanese word for justin-time inventory management. Some processors are even located in a customers manufacturing park, bringing the time for just-in-time deliveries down
to hours instead of days. However, just as polymer manufacturers, compounders, and distributors must, processors also must diversify their customer base
to assure that their future is not irrevocably tied to the fate of a single account,
however great that account may be. Some captive operations have entered
the custom processing business to utilize otherwise idle machine time and
improve their internal profitability.
Processors are also finding that they need to offer more than just machine
time in order to keep their customers happy as well as to increase business.
Adding additional services is not just a route to improved profitability; it can
also mean survival. As described elsewhere, some processors have gone so
far as to characterize themselves as contract manufacturers, offering design,
production, stocking, and shipping.
While many smaller processors sell through independent sales representatives, the larger, faster growing, and more profitable ones have their own
direct sales force. While independent sales reps offer the protection of reduced
overhead during downturns, they rarely know a companys particular capabilities as well as a full-time employee would. This kind of knowledge should
translate into more business and more profitable business at that. Reps also
generally handle several product lines, and processors will find that they are
competing for a share of the reps time. For this reason, many processors
have a sales manager who is responsible not only for direct sales to the most
important customers, but also for supporting and guiding the rep organization.
2.5 Equipment, Additives, and Other

Firms that offer equipment, additives, and the like to the industry are important
components. But, while a number of relatively small, specialized companies
do exist, many are typically units of much larger companies that are mainly
concerned with non-plastic markets. As warned in the preface, the variety of
products, companies, and interests under this heading preclude other than
limited commentary.
2.5.1 Technology
It may seem repetitious, but technology once more is the reason why these
firms exist. The need to process materials more efficiently, to endow compounds with enhanced properties, to measure those properties accurately and
reproducibly, among other things, is what drives the business of this group
of companies. The plastics industry could not exist without these vital technologies. These technologies are also constantly evolving and those who do
30
not keep up with the pace of improvements are likely find themselves in
trouble by offering an obsolete product line.
2.5.2 Critical Mass

One may observe that these segments of the industry are subject to the same
cost pressures as the others. Smaller companies are acquired by larger ones
in order to achieve the minimum size necessary to compete on a broad scale,
both from a standpoint of product line as well as global presence. The
application of their products to markets well diversified beyond plastics helps
to spread overhead over a much larger sales base and offset some of the
industry economic cycles. Of course, these combined companies need to be
large enough to support adequate research, administrative overhead, etc.
Having at least one good high-volume product in the line does not hurt either.
Consolidation is reshaping this industry sector. For example, Mannesmann
AG acquired seven other equipment companies between 1989 and 1999:
Berstorf, Billion, Demag Ergotek, Krauss Maffei, Netstal, Newbury, and Van
Dorn. During the same period, Cincinnati Milacron (now simply Milacron)
acquired six other companies: Autoinjectors, DME, Johnson Controls, Klocker
Ferromatik, Uniloy, and Wear Technologies. Thus, 15 companies have become
just two in the space of 10 years.
As an example of how a company in this segment can achieve critical
mass yet remain diversified, look at Crompton Corporation. Annual sales
revenues in 2000 were $3B, the result of a major merger and a dozen smaller
acquisitions over a period spanning 11 years. The company has four plastics
industry divisions (with sales in 2000 shown in parentheses) that represent
70% of the overall business:
Crompton petroleum, olefin, and styrenic additives, plus vinyl additives
under the Witco brand ($1B)
OSi Specialties silanes and specialty silicones ($485M)
Uniroyal Chemical elastomers, rubber chemicals ($335M)
Davis-Standard an extruder, blow molding, and downstream equipment
supplier ($310M)
Other divisions non-plastics industry specialty chemicals ($870M)
Crompton management says that the synergy between the various units
technologies enhances growth and profitability. Crompton still has a lot to
prove, however, and intends to install ERP in 2002 to be able to understand
the financial demands and contributions of the extraordinarily large number
of products it makes. Even its size and diversification did not save Crompton
from losing money in 2001, and it is now divesting some product lines to pay
down debt.
31

Yes, good relationships with customers are important for these industries too,
especially equipment suppliers. When manufacturers expand or upgrade, the
performance of the equipment previously purchased and the service received
will mean as much or more as the price paid when it comes to the next
purchase. This is often a matter of when, not if, so the supplier must keep
the customer satisfied even when only one purchase has been made to date.
Despite their specialized nature, these suppliers exist in highly competitive
markets. Companies in this industry segment find that most of their products
are sold in limited quantities and at relatively lengthy intervals. This would
mean that direct sales must concentrate on the largest customers, with distributors handling smaller ones.
Chapter 3
Technologies and Markets

Shape How a Business Is Run
As mentioned earlier, the plastics industry is divided into product and market
segments that strongly affect how companies will have to run their businesses.
In a number of cases, the companys original management did not consciously
decide to be in certain lines of business, but the nature of companys technology and their accompanying markets have put them there. Technology is
a common thread connecting all of the different industry segments. You need
to be aware of these powerful influences and take them into account when
managing the business.
Most of this discussion will be about thermoplastics. The reason is that
available technical and market data on thermoset materials are much less
specific than those available for thermoplastics and consequently not readily
analyzed and compared. In addition, other than a few resins (notably polyurethanes), the thermoset sector of the plastics industry is largely mature and
scarcely growing.
3.1 Technologies
3.1.1 Materials
The technical characteristics of materials produced, compounded, or distributed by a company characterize and drive the form in which its business is
conducted. The way to conduct a commodity business is very different from
successfully operating a specialty business or even a semi-commodity business.
A surprising number of commodity company managers seem eager to brush
aside this principle when the occasion arises, with predictably unhappy
consequences.
33
34
3.1.1.1 Commodity and Semi-Commodity Materials

There is a good correlation between market price and sales volume, as shown
in Figure 3.1. This figure depicts volumes in year 2000 of polypropylene (PP),
polystyrene (PS), nylons (PAs), polycarbonate (PC), polyphenylene ether (PPE)
blends, polyphenylene sulfide (PPS), liquid crystal polymers (LCPs), and polyetheretherketone (PEEK) vs. relative volumetric prices (using PP = 1.0). Higher
prices correspond to less sales volume and vice versa. Of course, this is over
a period of time, as market forces take a while to react to price changes. For
purposes of this discussion, lower priced materials (under, say, $1.50/kg or
$.68/lb.) are classed as commodities. Commodity resins are usually defined
as including PP, PS, polyethylene (PE), polyvinyl chloride (PVC), and polyethylene terephthalate (PET). Semi-commodities are defined here as being
more expensive than commodities and selling in smaller volumes, but otherwise having similar characteristics to commodities; this is discussed in more
detail in the next paragraph. Many engineering plastics have become semicommodities and include acrylics (PMMA, both thermoset and thermoplastic),
acrylonitrile-butadiene-styrene (ABS), styrene acrylonitrile (SAN), acetal (POM),
polybutylene terephthalate (PBT), PPE blends, PA, and PC; as noted below,
polytetrafluoroethylene (PTFE) also falls into this category. Many thermoset
materials may also be classified as commodities or semi-commodities; in the
former category would be phenolics, unsaturated polyesters, and aminos and,
in the latter category, polyurethanes (PUR), alkyds, and epoxies. Polyurethanes
are a unique series of products, with commodity grades for such end uses as
foamed building insulation, semi-commodity grades for more sophisticated
end uses such as automotive fascia and fenders, and even thermoplastic high
performance grades (TPUs) for end uses that demand abrasion, impact, and
ultraviolet resistance.
Figure 3.2 shows volumes and revenues for the principal commodity polymers and engineering/semi-commodity polymers combined in year 2000. The
unusual range of categories for polyurethanes accounts for why their volume/
revenue relationship stands out from other materials.
What are the differences between commodities and semi-commodity materials? General-purpose grades of both types are largely interchangeable within
specific families and grades; that is, most general-purpose 12-melt-flow
homopolymer polypropylene or 9-melt-flow acetal copolymer grades can be
molded and used in a part with few, if any, apparent differences. Correspondingly, this would not be true for PP copolymers vs. PP homopolymers, nor
for acetal homopolymer vs. copolymer grades. Commodity polymer products
compete with each other primarily on price (assuming that availability and
service factors are largely equal). These first two factors hold true only up to
a point with semi-commodities, depending on the volume and requirements
of an application; as noted above, most manufacturers general-purpose products are interchangeable with those of others, but producers also make a
number of specialized grades that do not have exact equivalents available
from competitors. These latter products usually command price premiums
over the general-purpose grades, and competitors may not always price
35
Figure 3.1 Relationship of price vs. volume.
10
1
1
10
100
10000
1000
Volume, MT/yr.
100000
Relative Volumetric Price, PP=1.0
100
Technologies and Markets Shape How a Business Is Run
36
Figure 3.2 Polymer volume and revenue, world 2000.
10
15
20
25
PP
LDPE/LLDPE
PVC
HDPE
PUR
PS
PET
ABS.
ETP
K MT
M$
37
offsetting products similarly, depending on a number of factors (e.g., performance differences or targeted end uses). Finally, the physical volumes of
commodities that are manufactured, transported, stored, and processed are
entire orders of magnitude larger than the volumes in semi-commodities.
What are the requirements for managing a business based on such materials? Management has to focus on cost control while finding ways to develop
differentiated products. Cost control in the case of commodities usually means
heavy emphasis on minimizing the number of grades produced and maximizing the length of production runs and size of orders; while desirable, such
constraints are not essential for specialized products. Commodity producer
research and development (R&D) must be carefully limited to serving the
largest customers and markets. Commodity materials are, by definition, volume
materials with easy transition between suppliers products and are highly price
sensitive. Logistics play a critical role in cost and customer service. Bulk
shipping is the rule for commodities and requires an investment in transport,
storage, and strategic plant siting. These considerations are only occasionally
found in semi-commodity materials.
Even sales personnel are affected by these factors. Commodity sales representatives have to concentrate on the largest users and try to obtain longterm contracts. Semi-commodity sales representatives are more inclined to
look for new applications or to try to qualify their companies as second
sources for established and growing applications, with the emphasis more on
unit and account profitability than on pure sales volume.
3.1.1.2 High-Performance and Unique Materials

This group of materials may be classed as specialties, but with some differences
among them. High-performance materials are usually the most expensive of
all plastic materials but offer unusually high resistance to heat and chemical
attack and high dimensional stability over a wide temperature range. This
group includes polysulfones (PSU, PES, PPSU), polyetherketones (e.g., PEK,
PAEK, PEEK), polyimides (e.g., PAI or PEI), PPS, LCP, melt-processable fluoropolymers (such as fluorinated ethylene-propylene [FEP] and others), thermoset alkyds, and silicones. Unlike commodity materials, high-performance
products that are nominally the same can differ markedly from each other as
to properties, processing characteristics, and price. For example, LCPs from
DuPont, Ticona, Solvay, Eastman, and Unitika vary significantly from each
other in several of the characteristics just mentioned. Because high-performance and unique materials are relatively expensive, they are sold in much
smaller quantities than commodity materials; therefore, logistics and customer
service are much less significant components in their cost. High-performance
materials are packaged in bags, boxes, or sacks and are virtually never sold
in bulk.
Creating a business in these products requires a strong product and
application development group to keep sales and earnings curves moving up
smartly. Unfortunately, this is an area where many established commodity and
38
semi-commodity companies often fall short. When their R&D teams develop
promising specialty materials, management is often unwilling to support product, application, and market development on a scale necessary for success
because it seems excessively costly. This perception results from their experience in their existing commodity business but such experience is not really
germane to the new business. The half-hearted effort, then, results in technological success but marketing failure. Property modification and enhancement through compounding is another arrow in the quiver when it comes to
broadening unique product market opportunities. For example, adding fiber
reinforcement dramatically increases the usefulness at high temperatures of
such semi-crystalline polymers as nylons. This approach permits making
materials with properties that are custom-tailored to specific applications, when
standard grades do not quite do the job. This is a way to truly create value
for customers and earn their loyalty in return. Needless to say, it is also more
profitable.
Few materials are truly unique. All plastic materials compete with each
other and conventional materials at least to some degree; however, it is the
combination of properties and cost that ultimately decides which material will
be used in any given application. Even those protected by patents must
compete with others that overlap at least some of their properties. For example,
polymethylpentene-1 (PMP) is a relatively unique material. While its optical
properties do overlap those of other transparent polymers, its combination
of gas permeation, light transmission, and heat and chemical resistance set it
apart from such others as PET, PC, or SAN. Its relatively high cost precludes
it from taking over more than a small number of applications from the
competing products, but this pricing structure must also be considered to have
been a choice by the manufacturer to maximize profitability.
Polytetrafluoroethylene (PTFE) is another relatively unique material, both
from the standpoint of its properties and the fact that it is a notable exception
to the pricevolume relationship shown in Figure 3.1, selling in much greater
volume than would be predicted by its price. Nevertheless, PTFE has become
a semi-commodity within its range of applications, in the sense that little
difference exists among standard grades supplied by the various competitors.
PTFE has a remarkable combination of chemical inertness, lubricity, dielectric
properties, and ignition and heat resistance that sets it apart from most other
materials. However, it is not melt-processable, and PTFE processors virtually
constitute a separate community of fabricators because of its special processing
requirements (similar to sintered metal fabrication). Many parts made of PTFE
are machined from stock shapes or cut from skived sheets, due to its processing
limitations. PTFE melt-processable copolymers, such as fluorinated ethylenepropylene (FEP) and perfluoroxyalkoxy (PFA), offer much of the benefits of
the homopolymer while widening its range of applications due to its ability
to be molded or extruded.
Pricing unique materials is a special challenge. One cannot ignore other
materials that come close in properties, because too big a price differential
may allow a competing product to gain a foothold at the low end of some
applications or because of redesign. On the other hand, many applications
39
for unique materials are relatively price insensitive. As a rule, estimating what
will bring the highest total gross profit is the most effective way to set pricing.
A further consideration for unique product management is that continuing
application development is essential to keep sales of these materials from
falling to GDP growth rates when saturation of their initial markets is reached.
3.1.1.3 Support Requirements

Each type of material requires different levels and types of support. For
example, commodities require the least technical support, and high-performance materials require the most; however, commodities require more investment in logistics than do high-performance materials. The impact on the
business is subtle; increased R&D support is a direct expense and normally
runs between 2 and 5% of sales, whereas increased logistics support is likely
to be in the form of additional investment in storage and transport, showing
up in financial statements as depreciation spread over a number of years, a
small fraction of a percent of sales. Yes, some companies do capitalize and
depreciate their R&D, but this is not a preferred financial treatment in the
plastics industry, unless the effort resulted in a patent.
3.1.2 Processing Equipment

The businesses of processors are also affected by technology in this case,
the equipment they possess. Not only equipment types, but also the scale
and range of integration come into play when considering the impact on the
nature of the business models of processors.
To a large extent, a processors equipment defines the business of that
processor. A molder with 2500-ton clamp presses is more likely to be involved
in business machine or automotive markets than in power tool markets, just
as a molder with 75-ton clamp presses is more likely to be supplying electrical/
electronics than major appliance markets. A rotomolder is more likely to be
involved in consumer products than in medical equipment markets, and a
pipe extruder is virtually, by definition, supplying the construction market.
As mentioned earlier, some processors specialize in types of materials
processed, such as thermosets or polytetrafluoroethylene (PTFE). Again, this
tends to define the markets served as well. Thermoset compression and transfer
molders are likely to be focused on electrical/electronics and PTFE processors
on chemical process equipment and some automotive components.
3.1.2.1 Equipment Types: Opportunities or Limitations?

The answer to this question, of course, is both. Injection molders seldom
compete with extruders, although blow molders may find they are competing
with thermoformers or rotomolders. Equipment type and size also often mark
processors as generalists or specialists; a range of machine sizes is more likely
to be found in the plant of a large general custom molder, for example, than
40
in the shop of a small specialized molder. In the global marketplace, owning

large equipment and making large parts can also contribute to a more secure
business base; the cost of freight is likely to offset enough of any manufacturing
cost advantages of overseas molders that the speed-of-delivery becomes a
major plus factor.
3.1.2.2 Full-Service vs. Specialist

As processors grow in size, they will usually come to a point where they find
that their initial focus on a single process limits future growth and/or profitability. Often, a major customer who wants one-stop shopping forces this
decision. The processor ignores such desires at the risk of losing all of that
customers business. On the other hand, not every added service adds value;
do not make the mistake of pricing some services below cost on the theory
that you will earn more from additional overall business. That is not sound
practice. For example, suppose a customer wants the molder to electroplate
parts. This request should be analyzed as a make-or-buy situation: whichever
course makes a more satisfactory return on investment will be the one to
take. It should not be an automatic reaction to go out and buy electroplating
equipment. Buying equipment that is only used to service one customer
presents a risk that should be appraised carefully. If you can pay off the cost
and make a profit within the life of the purchase contract offered by your
customer, it may well make sense. But, if the process is unfamiliar to you, it
may be more beneficial to contract out the service.
3.1.3 Patents, Trade Secrets, and Licensing

As noted in the previous chapter, technology is generally a critical factor for
competing successfully in the plastics industry. Technology comes in several
varieties:
In the public domain, which means that it has been published in open
literature and is free of any patent restrictions. Most basic manufacturing
operations fall into this category, such as simple compounding and polymerization steps that follow well-known chemical engineering unit operations, as well as long-established processing methods. Most basic molding
and extrusion processing technologies are in the public domain.
Patented, which means that the composition of matter or process or usage
has been described in detail in a patent that has a finite life, after which
the technology falls into the public domain. Only the owner of the patent
can use the technology or grant others the right to use it. Anyone infringing
a patent (using the technology it claims) without permission can be sued
by the patent owner for damages, as well as being issued a cease and
desist injunction from the court for immediate relief. Patent lawsuits are
among the most expensive of civil cases to prosecute or defend, and the
financial stakes must be high to justify the costs. Such lawsuits also require
a substantial amount of time from company personnel for the preparation
and implementation of the lawsuit. A number of current patents cover
41
materials, processes, and equipment in our industry. This is usually noted

in the owners literature.
Trade secrets, meaning technology that is both unpublished and not
generally known or practiced outside the company that uses it. The
company that claims ownership of a trade secret must take steps to ensure
that it remains proprietary by, for example, restricting access to the formulation or process area where the secret is used and requiring all
employees to sign a secrecy agreement that they will not disclose or use
the secret outside their employment with the company (see Chapter 6).
The fact that a company is practicing a trade secret is seldom advertised.
Trade secrets and patents may be licensed to others and it often makes
sense to do so. For the licensee, this route offers fast access to proven
technology without the cost, risk, or delay of having to develop comparable
technology. For the licenser, this route offers an additional source of financial
return on the investment it made to develop the technology and, usually,
access to any improvements made by the licensee. While it is true that by
issuing one or more licenses the licenser may increase competition for itself,
in some situations this can actually be advantageous. The reason is that many
potential large customers for the patented or trade-secret-protected product
may choose not to use a single-source material, out of concern for sufficient
supplies or the monopoly power of the manufacturer to set artificially high
prices, or both. The entry of a second supplier, even though under license
to the first supplier, usually removes these concerns and causes the demand
for the product to grow much more rapidly than would be the case with only
one supplier. Second suppliers also usually develop new applications and
markets faster than one, not only because they bring more assets to bear, but
also because it makes better business sense to find opportunities where the
initial supplier is not active. Finally, patent holders have to recognize that
their monopoly has only a short life and they can gain more during the lifetime
of the patent by licensing to create a strong duopoly that will make it more
difficult for any others to enter the business after the patent has expired.
Unfortunately, not many patent owners have been willing to observe and
learn from the few who have either deliberately pursued limited licensing or
found it the easiest exit from a lawsuit and then succeeded along the lines
described. DuPont and Celanese chose this course after briefly contesting each
others POW patents, and both prospered.
Often, engineering firms or equipment suppliers will furnish technology
packages as part of their products and services. Turnkey plant components
and layouts are usually based on information in the public domain. Individual
equipment items may be patented or trade secrets, but the buyer gets a license
as part of the purchase.
3.1.4 Regulatory and Environmental Issues

Most polymers, particularly such commodity materials as polyolefins and
polyethylene terephthalate, are chemically inert and therefore relatively benign
42
from an environmental standpoint. But, because PP, PE, and PET are so widely
used for food packaging, they can pose a litter problem. Management needs
to foster recycling or incineration of these materials wherever it makes economic sense to do so. Furthermore, the economic picture must be addressed
over the long term rather than just on the basis of short-term price fluctuations;
otherwise, recycling firms have been and will be driven from the business if
producers price virgin material below recyclate for any length of time.
Polyvinyl chloride (PVC) has received particular opprobrium from some
environmental groups, because the monomer, vinyl chloride, is a known
human carcinogen, and partial incineration at low temperatures (admittedly a
remote likelihood) of the polymer can lead to the formation of certain dioxins,
which can cause dermatitis in humans and cancer in guinea pigs. Despite
these attacks, it has been clearly demonstrated that PVC can be successfully
recycled or incinerated, although PVC recycling has not benefited from anything approaching the level of municipal collection that PET and PE have.
Engineering and high-performance plastics can be recycled but economics
favor post-industrial rather than post-consumer sources, in order to have an
identifiable and relatively clean waste stream of sufficient size. One such
source, nylon fiber waste, is ideal for recycled nylon molding and extrusion
compounds. Most processors recover sprues, runners, and scrap parts as part
of their normal operations; if recycled material is not permitted to be used in
making parts, then the regrind material can be sold to brokers or other
processors, where it also ends up being recycled.
Thermosetting materials can also be recycled in the form of filler for virgin
compounds. This has been demonstrated for polyester and epoxy molding
compounds; there would seem to be no scientific reason why others could
not be recycled similarly as well.
Many processors do not have the background in chemistry or chemical
engineering to be knowledgeable about the dangers of toxic or dangerous
fumes coming from hot or decomposing polymers. This information is readily
available from suppliers, in simpler form than that contained in a Material
Safety Data Sheet (MSDS), which tends to be quite technical and legalistic. In
addition to technical support from materials suppliers, processors will find
that membership in industry trade associations, such as The Society of the
Plastics Industry, can be very helpful in identifying such problems and taking
steps to deal with them.
3.2 Markets
The enormous variety of end uses for plastics materials is what gives the
industry its truly dynamic character. It also offers an exciting and defining
challenge to find the optimum mix of markets and customers to pursue that
fits with the products your company makes, the services it offers, and your
financial goals. Many people who have worked in the plastics industry, but
left it to pursue another career, return because they missed the seemingly
endless variety of new applications and business opportunities.
43
Other
16%
Packaging
30%
E/E
10%
Automotive
16%
Construction
28%
Figure 3.3
Major markets by end use (volume).
While some companies have concentrated their efforts on just the larger
end-use markets, many find it safer to spread their business over a number
of application areas. As noted in the previous chapter, the type of products
a company makes shapes its marketing efforts. Figure 3.3 illustrates the relative
proportions of the different major market segments by physical volume. As
noted elsewhere, packaging is the largest end use, followed by construction,
automotive, and electrical/electronic (E/E). Figure 3.4 illustrates the proportions by the process used to convert polymers to parts. Extrusion is the most
significant process, largely because most of the products sold in packaging
and construction are extruded. Injection molding, the next most important
process, is used for most complex parts. Blow molding is also heavily used
for packaging products. Other refers largely to thermoset processes, such as
compression and transfer molding, and reaction injection molding (RIM).
Note that the categorization of a given application by a specific end-use
market may seem somewhat arbitrary and is not always consistent within the
industry. U.S. Department of Labor Standard Industry Classification (SIC) codes
are seldom used by plastics industry market researchers because the categories
tend to be too general. It is common practice to categorize an application by
its most essential attributes. For example, an electrical connector in an automobile wiring harness is generally considered to be an automotive application,
whereas electrical connectors that are used in a variety of end uses are
44
Other
9%
Rotomolding
2%
Blow Molding
15%
Extrusion
45%
Injection Molding
29%
Figure 3.4
Principal forms of processing (volume).
considered to be E/E applications. Wire insulation, however, is part of the

wire and cable market, which in turn can either be considered as its own
category or as a subset of the E/E market. The following market groupings
are in line with those used by most industry analysts.
3.2.1 Packaging
Packaging constitutes the single largest end use for plastic materials, primarily
the commodity resins: polypropylene (PP), polyethylene (PE), polystyrene
(PS), polyvinyl chloride (PVC), and polyethylene terephthalate (PET). Semicommodity nylon 6 (PA6) is an important exception, because film for food
(mostly meat) packaging is a major market for this polymer. Packaging has
become the major market for plastics because plastics offer better protection
against spoilage and display products more attractively than do conventional
materials. Plastics are also lighter weight than traditionally used paper, glass,
and metal products and offer savings in freight costs (primarily fuel economy).
Because these are incremental advantages, economics are a principal factor
in choosing one material over another and thus tend to favor lower cost,
commodity-type materials.
Film and containers for consumer goods and food constitute the bulk of
this market and are truly commodities, using commodity polymers. Postconsumer recycling is also an important consideration for PE- and PET-based
packaging; some major end users and some government entities even specify
recycled content. One of the attractive aspects of the packaging market is its
relative resistance to economic cyclicality, at least in food packaging. People
45
have to eat, but the growth of convenience foods has been generally growing
even faster than the rate of population increase.
A number of specialty uses, such as industrial machinery and custom
packaging, are much smaller in volume but offer better earnings potential to
both the supplier and the user. These uses can range from made-to-order
polystyrene foam protective moldings to injection-molded acrylic cases for
small tools. Polymethylpentene-1 (PMP) has found some specialty food-packaging applications where its unusual combination of transparency, gas permeability, and heat and chemical resistance properties can sometimes offer
greater value than the commodity polymers mentioned earlier.
While the number of firms using polymers to produce packaging materials
is substantial, the usage by each firm is usually so large that they have
significant purchasing leverage. Polymer shipments are frequently made via
bulk carrier, either rail or truck, to these large users; therefore, expertise in
logistics is often critical to serving these customers. One must remember,
however, that volume packaging applications will always seek to shift to the
lowest priced materials that function satisfactorily.
Packaging materials that come in contact with food require compliance
with Food and Drug Administration (FDA) regulations and, in some cases,
with U.S. Department of Agriculture (USDA) regulations as well. Processors
utilizing such materials must ensure that the parts and films they make are
free of dirt or other contaminants when they are manufactured and packed
for shipment.
As mentioned earlier, selling products for packaging usually requires a
commodity approach to achieve significant, sustained, and profitable market
share. R&D must be targeted very carefully to ensure that the company can
recover the investment. Nevertheless, the relatively steady growth of packaging
makes this a market that should be included in nearly every companys
business plans.
3.2.2 Construction
Construction is a distinctly cyclical industry, and most applications are very
much commodity in nature. Construction is the second largest end-use market
for plastics. Most of the volume usage is processed by extrusion, such as for
piping, conduit, wire insulation, siding, reservoir liners, erosion control netting,
or architectural sheeting. Sometimes this category includes such agricultural
end uses as irrigation pipe and fittings, mulch films, and fencing. As in
packaging, plastics have displaced such traditional materials as wood, glass,
and metal, based on improved performance and lower cost. Considering the
volumes involved, the marketplace tends to favor commodities wherever
possible.
There are a number of regulatory hurdles to overcome in this market before
one can participate fully. For material suppliers, the most prominent ones are
the Underwriters Laboratories (UL) listings mentioned later in more detail, and
the National Sanitation Foundation (NSF) listings that are required by most
46
building codes for materials used to handle both potable and waste water.
For proprietary processors, parts must comply with applicable building codes,
so that you must develop a knowledge base of these requirements in order
to compete effectively. The scope of this knowledge base will have to include
the building codes of major cities, such as New York, as well as regions,
perhaps even other countries, depending on your targeted markets.
3.2.3 Automotive
The automotive industry is the single largest end user for many engineering
plastics, such as nylons (PAs), polycarbonate (PC), acetal (POM), or modified
polyphenylene ether (PPE). It is also an important market for commodity
polymers (e.g., PP, PE, and PVC). The automotive industry is unlike the
packaging industry in that there are relatively few users, and these users are
forcing their suppliers to consolidate by reducing the number from whom
they will buy. Their purpose in doing this is to gain purchasing leverage,
offering the prospect of greater sales revenue per supplier in return for lower
prices. The sales revenue potential of the automotive industry is so large that
many firms are attracted to it, but profitability is not only low but also under
constant and heavy pressure from both customers and competitors which has
forced vendor consolidation, cutting the number of automotive suppliers by
more than two thirds in the past decade, according to an article in the
December 2001 issue of Injection Molding. While the average sales revenue
has risen tenfold during the same period, the top 20% of the suppliers earn
double the earnings before interest and taxes (EBIT) percentage reported by
the rest of the industry. Over the past 5 years, publicly held automotive
suppliers as a whole have reported lower earnings, expressed either as EBIT
or return on investment, than the consumer cyclical companies or the Standard
& Poors 500. Clearly, this is a market where it is dangerous to be anything
other than a leader.
Automotive business is notoriously cyclical, and suppliers can easily find
their orders canceled literally overnight if demand takes a downturn. Automotive business cycles not only include the ups and downs of the overall
economy but also those of individual brands and models. Operating successfully in a cyclical industry requires companies to have considerable flexibility
with respect to manufacturing capacity, such as outsourcing, and financial
reserves, such as lines of credit. Nevertheless, some companies have prospered
by learning how to cope with these problems successfully.
In the past decade, General Motors, Ford, and DaimlerChrysler (the Big
Three) have placed onerous demands on their suppliers to reduce prices by
a fixed amount per year, even retroactively, or face the risk of being phased
out as a supplier. This has prompted a number of suppliers to merge in order
to reduce their costs. Some suppliers have defied these demands successfully,
while others have either switched to supplying other automotive companies
or have reduced (or even eliminated) their exposure to the entire industry.
The Big Three acknowledge that their policies risk losing suppliers but they
47
are gambling that other suppliers will take the place of those who drop out.
It is interesting to note that the Japanese automakers in North America, such
as Honda, Toyota, Nissan, and Mazda, do not have this reputation and have
been consistently taking market share away from the Big Three. Is there is a
connection here? Could it be that the Japanese producers reputed superior
product quality depends at least partly on a more cooperative, truly partnering
relationship with their suppliers?
Another characteristic of this market segment is long lead-times for new
applications, seldom under 18 months and sometimes as long as 3 to 5 years.
This aspect adds risk to involvement in automotive application development.
The increased time to market allows competitors to learn what is going on
and attempt to become involved, even if it is only last-minute bidding. The
additional time also allows the end users to reconsider whether or not they
will really commit to taking a project into production, particularly if styling is
involved.
The automotive market must be addressed as basically a commodity business, regardless of the materials being used. Some exceptions to this generalization can be found, of course, but they are exactly that exceptions.
3.2.4 Electrical/Electronic
At one time, this was everyones favorite end-use market, and it is the third
largest overall. Applications range from tiny connectors to large housings, and,
while commodity materials (mostly housings or wire and cable insulation)
offer important volume, many opportunities can be found for the full range
of engineering and high-performance polymers. In the past, a substantial
number of customers using a wide variety of materials (many custom made)
in significant quantities yielded good revenues with excellent profitability and
high growth rates, but globalization has changed this forever, as industry
consolidation is reducing the number of end users, and outsourcing of production has led to fewer actual manufacturers. All of this, in turn, has resulted
in increasing competitive cost pressures keeping prices and profits down.
In the past decade, E/E buyers have been shifting manufacturing out of the
United States to lower cost countries, such as Mexico and Asia. Sometimes
the polymer sales follow these shifts, but for single-site processors the business
is gone indefinitely if not forever.
Other significant, but temporary, problems in the E/E industry have resulted
in product demand being borrowed from the future, resulting in overproduction to meet a temporary and overstimulated demand. The first problem
stemmed from an overly pessimistic concern about the inability of computer
systems to handle the Y2K problem. The problem itself turned out to be
relatively minor, but many companies and individuals replaced their computer
systems much earlier than they would have otherwise, thus borrowing from
future demand. The second problem occurred as a result of the incredible
hype about the Internet, which resulted in an immense overbuilding of wideband and computer facilities. Both of these runups are currently being digested
48
by the industry but it may be several more years before demand comes back
to normal levels. Meanwhile, E/E manufacturers are under immense pressure
to cut costs just to stay in business. Unlike the automotive industry, E/E is
relying on contracting out manufacturing and product redesign, rather than
pressuring suppliers to cut prices retroactively.
An important aspect of the E/E market is the fast time-to-market (usually
6 months) demands of the industry and the relatively short product life cycles
of perhaps 12 to 18 months. These considerations virtually preclude multiple
sourcing of materials and parts other than the most basic of units, such as
connectors. They also mean that suppliers must work with end users with
new applications from the beginning (for which they will be rewarded with
the business), but they will be unable to displace or even share business with
an existing supplier except in the case of major quality or delivery failures.
Cell phones come to mind as a good illustration of this type of application.
Doing business in this market requires evaluation of every product development, both materials and parts, by R&D with a view toward UL requirements.
This usually means that materials must be offered in flame-resistant formulations if they are not already inherently flame resistant. Regulatory requirements
in several European countries can also mandate that flame resistance must be
achieved without the use of halogenated components. A UL listing for flame
resistance for a qualified product is relatively quick and inexpensive to get
compared to another important UL requirement, the limiting temperature index
(LTI), which specifies the maximum continuous use (operating) temperature
for a material. An LTI will require 6 to 18 months to obtain. The expense of
obtaining and maintaining these listings (there is an annual fee) demands that
the market potential for each product be sufficient to justify them.
Some sectors of the E/E market have been evolving toward becoming
commodity businesses, but there are still a number of high-performance,
attractive opportunities in specialty sectors. New product and application
development has a good chance of resulting in significant, profitable business
in this industry as performance requirements keep ratcheting up. A need exists
for higher temperature resistance materials with processing characteristics
suitable for use in thinner walled, smaller components, among other things.
This is a challenge for everyone in the industry, from polymer manufacturers
through processors.
The largest subcategory of the E/E market, wire and cable, has a range of
commodity, semi-commodity, and specialty applications. Actually, all E/E
products, including wire and cable, eventually wind up in a number of other
markets. This can make for confusing comparisons, depending on the definitions of the markets assigned to various end uses. It also requires caution
when making growth projections to ensure that the eventual end uses are
properly categorized. For example, the top four end uses for wire and cable
are power transmission (power generation to user), communications, electronics (for example, CATV), and buildings. As is evident, these combine both
consumer and industrial users in each subset. The materials range from
polyolefins to fluoropolymers, with over two dozen firms supplying materials
to an even greater number of proprietary processor-end users.
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3.2.5 Consumer Goods

Consumer goods include such items as household appliances, power tools,
lawn and garden equipment, recreational goods, toys, furniture, etc. This
market segment is extremely diversified, with a number of very profitable
niche opportunities. The downside of business in consumer goods is that the
product life cycles are often short, and most applications are price sensitive.
Also, many of the end uses have seasonal patterns. While much of this market
is not yet international, the trend is in this direction. Already, some American
end users are purchasing in all three North American Free Trade Association
(NAFTA) countries (United States, Canada, and Mexico) or overseas. Some
processors and material suppliers have begun following these users to Europe
and Asia in order to serve their customers more effectively than a local firm
could.
Major appliances, such as refrigerators, dishwashers, or clothes washers
and dryers, have both commodity and semi-commodity aspects (as do a
number of other consumer goods, even ones that do not consume such large
quantities). Constant cost pressures have converted many applications to less
expensive polymers. For example, parts originally made from nylon have been
redesigned to use mineral-filled polypropylene instead. Still, there are applications where mechanical requirements (typically creep resistance and stiffness
at elevated temperatures) dictate using higher performance materials. This
market is one that favors materials suppliers with broad portfolios that can
successfully follow the substitution of higher priced by lower priced and still
lower priced materials.
Possibly the best-known consumer goods company to pursue a plan to
systematically skim the market for successively less expensive versions of a
product was Polaroid Corporation. Polaroid would introduce a new instant
camera line with extensive features that used high-end materials to ensure
that nothing would fail in use and charge a handsome price that more than
covered the added costs. When Polaroid calculated that sales growth for the
new line was slowing, it would bring out a redesigned model made of less
expensive materials and having less extensive features, introducing it as a
simplified version of the first one. This could be repeated again and again as
long as additional market growth appeared possible at lower prices and the
older, more expensive models were still selling. Polaroid engineers would tell
molders and material suppliers exactly what they were doing so that all could
participate in this extraordinarily successful (for a time!) marketing concept.
Consumers who wanted something exciting and new and could afford to pay
top price would buy the first product introduction. Consumers who could not
afford to be first in line could wait until the lower cost model came out. In
effect, Polaroid created a marketing technique that depended on the wellestablished plastics industry phenomenon of migration over time from a higher
priced to a lower priced and a still lower priced material. Alas, Polaroid finally
ran out of ideas and recently has filed for bankruptcy.
Consumer non-durables are defined as items expected to last less than
3 years and consist mostly of single-use, disposable items, such as single-use
50
cups, picnic tableware, and disposable diaper components, and specialty

packaging (e.g., cosmetics cases). Cost is king, as one would expect in such
commodity applications.
Although synthetic fibers are not widely thought of as part of the plastics
industry, they indeed are and they strongly affect the supply and prices for
their base resins. The great majority of fibers are used for consumer goods,
such as carpeting and clothing. When housing starts or consumer purchasing
are going through the down part of their economic cycles, integrated polymer/
fiber producers have more capacity to divert to plastics sales, with the obvious
effects mentioned earlier.
3.2.6 Industrial Components and Semi-Finished Shapes

Industrial components are a bit of a catch-all, but this end use is mainly
concerned with machinery parts, such as pump housings and impellers,
conveyor links, or gears and bearings. This is an ideal market into which to
sell; it is highly fragmented, has low competitive visibility and high value in
use, and therefore has high profitability. Product life cycles are usually likely
to be long. End users in this category are often local. The drawback is that
volumes tend to be small. The materials used run the full range from commodities to specialties but tend mostly toward engineering and high-performance polymers.
Semi-finished shapes are rod, tubing, and sheet, which are mechanically
fabricated into other parts for mostly unidentified end uses. Often semifinished shapes are used to make prototype parts for evaluation or even small
numbers of commercial parts. This is an important market in terms of size,
but its growth rate is less than many others and it is very competitive. There
has been considerable consolidation taking place in the last several years, so
the remaining processors are able to exercise considerable pressure on suppliers prices. This is an unusual business segment because shape producers
rarely have direct contact with end users, their route to market being almost
entirely through stock shape distributors, a group separate from plastic material
distributors.
3.2.7 Other
We needed a category for everything else and this is it; nevertheless, a
few components here are identifiable, and some of the larger ones include
(1) medical and (2) aerospace and military.
The medical market is not only more recession proof than food packaging,
but it is also growing faster. Medical products are of two types, disposables
and durable equipment. Disposables are commodity products (the emphasis
is on cost) but reliability demands are much higher than for, say, housewares,
and this makes profit margins better than in many other commodity markets.
Many of the disposables are relatively high tech, such as catheters, blood
bags, IV bags, etc. Medical durable equipment also offers the opportunity for
51
higher margin business, because components are likely to require special

materials and short molding or extrusion runs; again, reliability demands are
high but this also means that you may wish to review your exposure to
product liability claims with your insurance carrier.
Aerospace and military markets are among the most challenging markets
for plastics. End users are highly fragmented, volumes range from small to
medium, and application development typically has very a long timeline;
however, product life cycles correspondingly also tend to be very long. These
markets are kinder to material suppliers than processors. Once a material is
approved, a supplier can look forward to a long run, perhaps even decades.
If the material specification has been written around a particular product tightly
enough, competitors are unlikely to be able to qualify their material as an
alternate source. On the other hand, parts contracts are generally put up for
bids annually, so that a processor must defend the business every year. Doing
business with the U.S. Government also carries some obligation to maintain
a product for reasons of national security.
Chapter 4
Company Culture and

Organization
Because the plastics industry is relatively young and growing rapidly (compared to industries based on such conventional materials as wood, metal, and
glass), it has a very broad mixture of company cultures. And, as the companies
of the industry grow in size or consolidate, following local customers to other
parts of the country or the world, their business cultures are constantly
changing.
What is a business culture? It is the consensus of people within a company
about how to react to stimulus, both internal and external. This consensus is
influenced by many factors: senior management, employees, vendors, customers, the geographic location of the workplace, etc. Cultures are both inherited
and developed over a period of time. Business cultures can take many forms,
but we can simplify the analysis by looking just at the principal ones found
in the industry and see what sets them apart from each other. No particular
type of company culture is intrinsically right or wrong. They exist as a social
phenomenon and must be viewed as such.
Why do we care about culture? Because it imposes certain constraints on
how a company is managed. Sometimes the companys culture is appropriate
to making a business grow profitably, sometimes not. One cannot manage a
company successfully without a working understanding of its culture. Having
assessed this, an executive may decide to either work within the existing
culture or seek to change it. If management ignores the culture and its inherent
constraints, then management is likely to have an uphill battle on its hands
trying to get subordinates on board with its objectives and then reaching the
desired performance goals. You should understand that changing a culture is
a slow, difficult process, with a significant potential for failure. The biggest
barrier to changing a company culture is often at or just below the top; the
most senior managers frequently are the most resistant to change, not because
53
54
they are incapable of new thoughts, but because they fear an accompanying
loss of authority, status, and compensation. These people must be brought
on board at the onset or replaced. The usual way to change a culture is to
revise the organizational structure and reassign key people to new responsibilities. The least risky but slowest route to successful culture change is to
accomplish it through one subordinate group at a time, but never forget those
pesky senior managers mentioned earlier.
Even if you are satisfied with the culture and organization that is in place,
you need to understand what makes it work so as to direct its functioning
on an effective and efficient basis. This chapter deals with all of these
considerations.
4.1 Size Matters It Is Intertwined with Culture

It is no surprise that communications and, consequently, management become
more complex and difficult as the size of a company increases. Unfortunately,
that is the good news. The bad news is that a number of people who function
well in a small company often do not do as well in a large one and vice
versa. Therefore, you must expect that some personnel friction will accompany
rapid growth or shrinkage, which goes beyond just staying even with the pace
of business. The inflection points at which the size of the company affects its
organization and the personnel in it will vary according to the function of the
group involved (e.g., manufacturing vs. research and development). As a rule
of thumb, new companies first feel these growing pains when they reach
professional staffing levels that require two layers of supervision below top
management. The first addition of a geographically separate site (even in the
same country) will also introduce some cultural friction. If the new location
is in another time zone, so that communications are impeded, the friction is
intensified.
Company size strongly influences company culture and vice versa. Small
companies are more like small towns or even extended families, where
working relationships are often also social ones. There are few secrets in small
companies! Because of simpler organizational structure and fewer personnel,
small companies are usually able to make fast decisions and react quickly to
changes in the marketplace. Small companies are generally strongly customer
focused. When they are not, it is typically because they have a culture left
over from a previously downsized, much larger company. When they reach
the stage in their growth where these interrelationships do not function as
well as before, then a culture change may begin to take place.
Large companies are typically more focused on global strategies and cost
control, with particular emphasis on manufacturing and logistics. They are
often, but not always, commodity oriented in some measure. As a rule, they
are more overall market or product focused than customer focused; one can
see this diffusion accelerate as they turn over increasing numbers of customers
to distributors in order to reduce costs. Large companies also tend to be more
impersonal, with more formal relationships between people working in
Company Culture and Organization
55
different groups. Big company cultures can all too easily degenerate into
bureaucratic, quasi-government cultures, where job security and turf matter
more than company success. This must be guarded against, obviously.
Frequent restructuring can produce this breakdown when the employees
question managements loyalty to them and decide they will survive best by
hunkering down and trying to ride out the changes.
In addition to being influenced by size, company cultures often reflect the
dominant professional group (e.g., technology or manufacturing or sales) when
the company came into being or went through a reduction in size. Cultures
also reflect the characteristics of the ownership, whether they are a founding
family, institutional investors, or foreign nationals.
Because polymer production has been as a rule parented by basic chemical
or petrochemical companies, polymer manufacturing is almost always associated with big-company, managerial, commodity, and, sometimes, technology
cultures. Compounding, processing, and distribution, on the other hand, are
most frequently found to have small-company, entrepreneurial cultures. We
will examine in greater detail some of the more frequently encountered cultural
varieties in the following paragraphs.
4.1.1 Entrepreneurial Culture

Entrepreneurial companies are almost invariably small ones, where the founder
(usually the owner) is the boss who is following his vision and is typically
involved in every detail of the business. If you are that boss, then you can
make your entrepreneurial company an exciting and enjoyable place to work,
if you structure the work environment so that everyone feels a sense of
mission, participation, and accomplishment as the business grows and prospers. If you attempt to micromanage every detail, however, all you will ensure
is that you will work 80+ hours per week and that your subordinates will
grow frustrated as they are prevented from having a chance to do anything
of their own undertaking. You will also ensure a high personnel turnover. In
the normal business world, entrepreneurships generally either succeed or fail
within two years of start-up.
Entrepreneurial companies are usually service and specialty products oriented, with the ability to tailor these offerings to the customers needs. Virtually
all of the entrepreneurial companies within the scope of this book will be
compounders, distributors, and processors. The capital requirements for polymer manufacturing are generally so large as to preclude entrepreneurial startups. While a few entrepreneurs have created polymer manufacturing
companies, this was in the past and such situations no longer exist. A polymer
manufacturing company that started out as an entrepreneurial culture will have
shifted to managerial or commodity long ago. Possibly a management buyout
of a small specialty polymer manufacturer might reintroduce an entrepreneurial
culture, but it is more likely to be a management one.
Interpersonal relationships in entrepreneurial companies are usually quite
strong. This is not surprising, as almost everyone has been hired by the founder
56
and usually shares the founders sense of mission. The employees also usually
exhibit a sense of loyalty to the founder and the company, that has given
them the incentive to work harder (if not smarter).
Entrepreneurial companies are also frequently family owned and managed.
Although Andrew Carnegie thought that succeeding generations never measured up to the founder (from shirtsleeves to shirtsleeves in three generations), a number of small to medium-sized companies have flourished under
family ownermanagers, and even large companies, too, such as Huntsman
Chemical (the Huntsman family). Perhaps the greatest strength found in such
entrepreneurial companies is a continuing clear and consistent vision of the
companys purpose in business, in contrast to many large, publicly held
corporations. As mentioned elsewhere, the chemical industry over the past
decade has seen some of its largest firms decide to change their vision and
become life-science companies, divesting their base businesses (such as plastics) and then realizing too late that they were not big enough to
compete successfully against real life-sciences companies. The result has been
the disappearance from the plastics scene of some of the industrys oldest
names, such as Hoechst and Monsanto. Another benefit is the assurance that
the family has committed to continuing ownership of the company, thereby
giving some measure of security to the employees. Of course, these decisions
are subject to change when generational succession takes place. Jon Huntsman
recently admitted that his family now wants him to take the company public,
even though he went on record ten years previously as saying that
commodity chemicals [are] no place for the investing public. The cycles are
too deep, the basic factors governing business are 7580% outside the control
of managers, and investors dont understand that these types of businesses
have periods in their cycles when business is so weak, dividends cant be
paid. Its OK if a commodity business is part of a much larger company,
because the impact is lessened. But its far better that a commodity company
be private. It can take the up cycles with the down. Huntsman, a cancer
survivor, noted that taking Huntsman Chemical public would be a consideration in the course of his estate planning, a problem that confronts every
entrepreneur who wishes to keep the business in the family as much as
possible.
4.1.2 Managerial Culture

A managerial culture is frequently the successor to an entrepreneurial culture.
By definition, the companys founder is not trying to run everything as he or
she would in a start-up. The focus is on growth and profitability, rather than
becoming established and surviving. Management personnel view the company
as part of their career, not as an extension of their personality, or at least they
should do so. Sometimes, senior managers begin to think of the company as
theirs and the company reverts to an entrepreneurial culture when it may
not be appropriate to the situation. Interpersonal relationships and company
loyalty are not as strong as in the entrepreneurial company. Some family-owned
57
businesses move into this category when the founder retires or dies, and the
family wishes to retain ownership but employs non-family management to run
things. Managerial cultures are the prevailing ones in publicly owned companies, and they are also usually present when a privately owned plastics industry
company reaches $200 million or more in sales.
4.1.3 Commodity Culture

Commodity cultures are usually found in large companies (well over $1 billion
in sales), with the focus on manufacturing and cost control cited earlier. For
our purposes, commodities may be conveniently defined as those polymers
that are produced in high volumes, are sold at prices under $.60/lb ($1.32/
kg), and the properties of one producers product are essentially undifferentiated from those of another. Low prices mean that logistics and transaction
costs are significant, and that operating profit margins are thin on an absolute
basis for example, $.01/lb ($.02/kg). For these reasons, commodity companies emphasize long, smooth production runs, a minimum number of grades,
and tight control over costs. When effectively managed, these companies can
be very profitable. Over the decades, their biggest problem has been to avoid
following the business cycle by overbuilding capacity just before a dip in the
economy.
Commodity cultures tend to have flat, lean organizations. Interpersonal
relationships and company loyalty are important to the successful operation
of such businesses where so much depends on so few people. Unfortunately,
many commodity companies may lack such loyalty if they have gone through
a number of staff reductions to get where they are (usually in the course of
mergers). Personnel stability over a period of several years can help restore
some of that lost loyalty.
To a degree, the commodity culture of the polyolefins industry sector stems
from its roots, bulk petrochemicals. Oil and gas are mineral commodities and
they shape the culture of the corporations that produce, refine, and transform
them into petrochemicals. To a significant extent, oil and gas companies own
polyolefin producers (usually through petrochemical subsidiaries or divisions),
and the commodity culture they transmit through management control is
unavoidable. Industry observers can see this in oil and gas company annual
stockholder reports, where the tons of chemical products produced are
reported right alongside the tons of oil and gas produced, as if they were all
the same thing, regardless of the wide difference in selling prices and profitability between downstream chemicals and oil. The emphasis on physical
throughput as all important is still unmistakable, although the rhetoric has
been updated to show that management is now more focused on sales and
earnings (but relative profitability is seldom mentioned). The effect of tax
laws, including such esoteric concepts as depletion allowances, helps increase
an integrated oil and gas companys cash flow from the production of oil and
gas. Considering the high initial cost of finding and developing oil and gas
wells, it behooves the owners to maximize sustained production once the
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wells come onstream. In turn, downstream activities, such as refining or

chemicals manufacturing, almost become an exercise in trying to keep the oil
and gas moving and the cash flow from being reduced. The economics of
mineral commodities dictate that products be priced at a market-clearing
level because it is usually more economic to keep product moving at whatever
price it will command than to cut production or attempt to stockpile it. While
this practice is perfectly logical in oil and gas, its application in polymer
manufacturing is a significant contributor to the wide swings in commodity
polymer pricing. Giving credit where it is due, the managers of energy
companies in recent years have come to recognize the cultural difficulty in
successfully running polymer operations within oil and petrochemical units
and now usually put them into separate divisions or set up stand-alone
subsidiaries or joint ventures.
A weakness notable in many commodity company cultures is an inability
to capitalize on the value of product differences where they exist. Instead,
they view product improvements as a sales tool to gain market share by taking
business away from a competitor at the same price being charged for a lower
performing product, instead of trying to use the performance advantages to
obtain some premium over the competing material. Granted, this is not easy
to do, but the failure to even try makes it very difficult for commodity company
to lift its profit margins above those of its competitors. Often this approach
results in an inability to pay for research and development (R&D) above
product maintenance levels. This weakness obviously works against the development of specialty products. If the management of a commodity culture
company wishes to diversify into specialties, then it has to set up such a
business as a relatively independent entity or risk almost certain failure. In
some companies, this approach has been termed intrapreneuring. Semicommodity (engineering polymer) producers seem sufficiently aware of value
pricing principles that they successfully develop profitable specialties on a
regular basis.
4.1.4 Technology Culture

Technology cultures flourish in R&D-oriented organizations, such as many
start-up computer software and electronics companies. In larger companies,
they are generally a subculture within an organization unless, as just mentioned, they are fused with the entrepreneurial culture in a high-tech start-up
company. Some similarities exist between industrial technology cultures and
academic science and engineering departments, where work is performed by
teams of professionals rather than by individuals.
Technology cultures are, by definition, more focused on scientific and
engineering development than on manufacturing or marketing. In some businesses, this is not unremarkable, because these latter functions usually follow,
rather than lead, the development of unique or dominant technology. Because
technology cultures are often associated with entrepreneurial cultures, they
are not often found in older, larger companies within the plastics industry.
59
This is not a common culture within the plastics industry, but it certainly does
exist. Some European polymer producers exhibit at least some elements of
this culture, and it may also be observed in a few processors, as well as in
a few machinery, additive, and instrumentation companies.
4.1.5 Nationality/Ethnic Culture

Without getting into the fever swamps of political correctness, suffice it to say
that significant and important differences exist among the business cultures
in various countries and ethnic groups. These are ignored at great risk to the
success of the business. The differences center on what each culture values
the most. The presence of a common language should not be mistaken for
a common culture; it tends to mask rather than bridge differences.
Perhaps the most common difference between American and many other
national business cultures is the notion of timeliness and urgency. Americans
put great store on being punctual at appointments and meetings, getting right
down to business discussions as soon as introductions are performed, seeking
to obtain immediate agreement on negotiating points, and implementing plans
as expeditiously as possible. In many other cultures, punctuality has no
particular virtue and is honored more in the breach than in the observance.
These cultures put great store on building trust before undertaking anything.
They want to get to know and understand a potential business associate in
depth before talking about any substantive points. They are likely to find it
offensive to be pushed into discussions, let alone agreements, before they
feel they are ready to trust the other party. They also often wish to revisit
plans several times before implementation. In other words, these cultures
place greater value on building long-term relationships than they do on getting
things done now. All of this may be very frustrating to Americans, but they
need to develop the patience and understanding necessary to accommodate
these views or give up trying to do business where these cultures prevail.
Often, turbulent periods in the history of these regions underlie the reasons
why their business cultures have evolved in this direction. For example, if
laws with respect to property rights have not been consistently enforced in a
locale, then it makes a great deal of sense to find out if you can trust someone
before risking your money and your business dealing with them.
The importance of trustworthy relationships in some cultures also carries
over into the area of problem solving. Americans need to be especially careful
when analyzing reasons for failure or inability to achieve goals with other
nationals and to deal with them as sensitively and objectively as possible,
even more so than when dealing with other Americans. If your customer,
supplier, or employee from overseas thinks that you are engaged in a blamefixing exercise rather than finding a solution, then they will dig in their heels
and resist cooperating. American lawsuits are derided and feared almost
everywhere overseas, and other nationals are often suspicious that Americans
will try to use the courts to gain what they cannot through discussions. Trust,
like its twin, a good reputation, is difficult to build and easy to lose.
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Another important difference between American and non-American business cultures is the concept of employment security as a social contract. While
this notion is gradually eroding as global competition becomes more intense,
in Europe, Japan, Latin America, and other areas, there are still strong social
feelings that companies owe their employees lifetime job security. Note that
business owners based in these same cultures by no means consider that
they necessarily owe the same obligation to their American employees as
they do to their society. Major problems can arise when American owners
try to restructure companies that they own in such overseas cultures. Governments and unions will not be the only ones opposed to downsizing;
company managers who are citizens of these countries are likely to be
uncooperative as well.
American business culture is both admired and deplored in many countries,
sometimes by the same people. When people talk about finding a third way
(e.g., between American economic freedom and socialist controlled economies), they often mean that they admire American economic results but do
not want to change what they are doing to obtain those same results. Americans
would be well advised to avoid making a practice of directly comparing
American business methods to the local ones, unless they have an uncommon
ability to do so very diplomatically. It is not difficult to win an argument but
lose friends and business.
4.2 Tailoring Organizational Form to Business Needs

One size does not fit all when it comes to organizational form. In fact, the
overall strength of the individual professionals making up the organization is
generally more critical to successful management than the organizational
format itself, especially in small companies. Nevertheless, as companies grow
in size and their business in complexity, it is sensible to take steps to ensure
that the customers needs are indeed the focus of the organization rather than
the process of the business itself. Functional or geographic organizations are
the most common forms, but market or product organizations are also widely
used. Some companies call the latter two forms business units.
4.2.1 Organizing by Function

The traditional functional structure, shown in Figure 4.1, has department heads
for manufacturing, R&D, sales and marketing, and administrative services all
reporting to the chief executive officer (CEO). This is the simplest organizational form and the one used by most companies, especially small and mediumsized ones. It concentrates expertise in each of the units responsible for
carrying out specific duties necessary for the business to operate on a daily
basis as well as in the future. It does require, however, that the CEO ensure
that coordination between the units is ongoing and working satisfactorily. In
some companies, particularly those having an active acquisition program, the
functional units report to a chief operating officer (COO), with the CEO being
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President/CEO
Administration
Manufacturing
Figure 4.1
Sales & Marketing
Research
&
Development
Functional organization.
more actively engaged in planning, acquisitions, etc. In effect, the COO is

responsible for how the company is doing and the CEO for where the company
is going.
This structure certainly is not wrong or old fashioned, and it easily can
serve the needs of many companies, whether they are large or small, multiproduct or single product, multimarket or single market. As companies grow
in size, however, functional teams may become too inwardly focused on the
process that they represent rather than on the combined results obtained,
and this is the time to consider reorganizing management along one of the
other structures described below. Another drawback to functional organizations is that major product lines or important markets will not be served
adequately because they are buried among the rest of the product lines and
markets served by the company.
4.2.2 Organizing by Product

Many companies in the plastics industry have evolved from a functional
structure to one organized by product, as they have grown larger in size and
their product line has become more diversified. An illustration of this structure
is shown in Figure 4.2. This type of organization can take several forms. A
common version has divisions devoted to a single product or groups of
President/CEO
Administration
Manufacturing
Nylon
Sales/Marketing
Figure 4.2
Stryrenics
Technical
Product organization.
Sales/Marketing
Technical
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products, with each division containing a functional organization. Another

common form involves a centralized function for, say, manufacturing, with
product units that incorporate R&D and sales and marketing. Product organization helps to rationalize manufacturing sites and to ensure global product
standards and pricing policies. It also favors centralized R&D, which may then
achieve the critical mass sufficient to make breakthrough technology advances,
as compared to the only incremental improvements typical of smaller unit
capabilities.
Organization by product makes sense when the company has several,
relatively large basic products that serve markets that have little overlap with
each other. For example, if a company makes nylon and acrylic resins, or
proprietary parts and custom parts, these products differ greatly in manufacturing and the markets into which they are sold. This would be a situation
where it makes sense to have a division based on each product, with each
division containing its own functional units. The principal disadvantages to
organization by product are that (1) it inhibits the flexibility of local managers
to react to competition, and (2) it is not particularly suitable for developing
genuinely new products.
4.2.3 Organizing by Market

If a company is to be truly market focused, then organizing by market is often
the most effective tool to do so. Figure 4.3 depicts a company organized by
market. This structure works best where the company has a number of
products for which the end-use markets overlap each other, or when the
number of customers is limited but their needs can be served by a number
of products made by the company. Market units that are directed to the
automotive and electronics industries are particularly common. The focal point
of a market-organized company is on solving application problems at one
company that can be applied to other companies in the same industry. This
approach is particularly fruitful in such industries as electrical/electronic, where
the emphasis is on participating in new applications that are likely to be small
President/CEO
Administration
Manufacturing
Automotive
Sales/Marketing
Figure 4.3
Technical
Market organization.
Electronics
Sales/Marketing
Technical
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volume individually but large volume in aggregate. As noted elsewhere, market

focus also improves business planning and creates efficiencies in manufacturing and R&D that ultimately improve profitability.
Market-focused companies are (or should be) customer-focused companies,
especially if the market is made up of a small number of customers, such as
the major automotive companies. The principal disadvantages of organization
by market are that (1) it tends to shut out or overlook potential business in
non-targeted markets for the companys products, and (2) it tends to funnel
technology, resources, and management time into defined markets, particularly
automotive, which may not be as profitable as emerging or underemphasized
ones, such as consumer goods.
4.2.4 Organizing by Geography

Organizing by geographic areas is useful when speed of delivery is critical,
such as for customers who demand just-in-time deliveries. It also speeds up
decision making when there are multiple time zones between headquarters
and the local plant. An example of this organizational form is shown in
Figure 4.4.
This organizational form, or some variation of it, is nearly essential for
companies with multinational locations. While overall policy may be set at
corporate headquarters, downward delegation to overseas sites must be adequate to handle business decisions locally, or the company will find itself
always reacting to competitors rather than meeting them on at least even
terms. Geographic organization delegates authority to the local managers for
pricing flexibility and the ability to tailor products for local needs.
A serious disadvantage of a geographic organization is that it may lead to
different company units competing against each other, with attendant profit
erosion as units fight over business that was yours to begin with. Other
disadvantages are that it leads to a certain amount of duplication, particularly
R&D, and that senior management will need to be involved in coordination
to ensure that global (or even national) standards are being followed.
President/CEO
Administration
Figure 4.4
North
South
America
America
Geographic organization.
Europe
Asia
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President/CEO
Administration
Manufacturing
Figure 4.5
Polyolefins
Automotive
Sales/Marketing
Sales/Marketing
Central R&D
Hybrid organization.
4.2.5 Hybrid Organizations

One can have a hybrid organization, particularly in large companies, with
different groups structured by function, product, market, geography, or even
by a few large customers. Figure 4.5 illustrates a possible hybrid company
organization. Hybrid organizations can avoid the weakness inherent in a onesize-fits-all approach, be it function, product, market, or geography oriented
(there really is no single best way), and many companies do just this.
Management should always look for the most efficient and effective structure
that fits the nature of each principal line of business. Hybrids may be a
management challenge to see that they work to the companys best advantage,
as they are unusual.
4.3 Management Styles

Elsewhere, I have made the point that a command-and-control style of management is unsuitable for this and other industries that depend heavily on
creative workers, particularly technical ones. Peter Drucker was one of the
first academics to recognize this phenomenon, dubbing these types of individuals knowledge workers. It is not possible to command creativity in any
function within the company, be it R&D, marketing and sales, manufacturing,
or administration. Creative solutions to problems come from people sharing
pertinent information from many sources. Creativity is greatly diminished if
information is too compartmentalized and dissemination too limited. Committees and project teams are an important way to ensure that needed information
is accessible to the parties that need it.
Management, particularly senior management, needs to know what is going
on within the company in order to execute their duties effectively. Holding
weekly briefing meetings with immediate subordinates is the classical way of
staying informed. Dont fail to ask questions! This should be done without
fail, because it is a very important way to build a management team relationship
by developing an appreciation among the subordinates of what each one is
doing and why. You can further improve on the quality of the information
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that is shared this way and build morale by having subordinates bring individuals from the next level down in their organization to brief the meeting
on what is going on in their sections. A different area should be represented
at each meeting, if possible.
Other ways to develop a better understanding of your organizations
workings include being an ex officio member of committees and attending
meetings on an irregular, unannounced basis. Another excellent way is management by walking around going out into the plant, the labs, and the
offices of your company without prior notice, just to see and talk to lower
level employees about their jobs. You might be surprised by what you learn
this way when the information has not been filtered through layers of subordinates. It also helps raise employee morale a surprising amount to see the
boss taking an interest in even entry-level employees and listening to their
views on their work. Make sure that you inform their bosses of any potentially
worthwhile suggestions you hear, and praise both parties for their interest.
Be cautious about using the open-door policy, however. Depending on
how it is utilized, it can be an effective safety valve, but it can also be a major
waste of time and potentially damaging to organizational relationships. There
is nothing wrong with making yourself available to meet with anyone from
any level in the organization up to a point. First of all, I do not recommend
permitting individuals to invite themselves; they should go through their
managers in a direct line to obtain an appointment (but their bosses should
not be able to say no). While those managers do not necessarily have to be
present during the visit, they should be at least involved in arranging the
meeting or they will be resentful that they have been bypassed or not informed
that their subordinate had been in to see you. Second, you will want to limit
the number of such visits you are willing to accept over the course of a month
or you may find that you do not have enough time to take care of your
principal duties properly.
Of course, a major exception to these limits is when someone wants to
blow the whistle on a serious problem. For example, if illegal activities are
going on that have been hidden from you, possibly by your subordinates, it
is absolutely imperative that you keep a channel open whereby you can learn
of these things before it is too late. Whistleblowers come in two varieties,
which cannot be easily sorted out before they arrive on your doorstep: (1)
those who make trouble for others because of personal enmity and/or have
some psychological disorder that compels them to lie, and (2) those who
genuinely care about working in an honest and ethical company and are
willing to put their jobs and reputations in jeopardy in order to give you the
opportunity to put things right.
Either way, your door must be open to such complaints, but then you
need to determine immediately but accurately which type of whistleblower
is in front of you presenting serious complaints. Do not let the first type
destroy the reputations of people who are innocent of the wrongdoing of
which they have been accused. Do not let the wrongdoers destroy the
reputations and careers of the second type who have trusted you to do the
right thing. This may well require having your attorneys bring in experienced,
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reputable private investigators to make this determination quickly. If you learn

that the accusations are false, then you should dismiss the informer, but do
so with care and legal counsel. You will have to be prepared to rebut any
attempt to embarrass the company by the individual going to outside groups
or the press.
If, on the other hand, your investigators were to discover illegal activities
going on (e.g., embezzlement, price-fixing, violations of environmental laws),
then you would need to consult your attorneys about bringing in the authorities
(e.g., the police, FBI, or EPA) to bring the criminals to justice without destroying
your company and its reputation, if at all possible. Such matters cannot and
should not be concealed from the authorities for any length of time, but it
does make a genuine difference how and when they are informed. In any
event, you must ensure that the whistleblower who first brought this to your
attention does not suffer from having revealed that others have hurt the firm
and you.
4.4 Board of Directors

The corporation is essentially the only legal form used by most companies in
the plastics industry. This is so because the limited exposure to legal liability
is clearly superior to the unlimited exposure in other forms such as partnerships
and sole proprietorships. The governance of corporations has a board of
directors at its pinnacle. The board of directors has a management oversight
function on behalf of the stockholders, who elect its members. Its principal
interface is with the CEO, as well as the chief financial officer (CFO). The
board is quite active in publicly held firms, typically meeting monthly. It selects
corporate officers and sets their compensation, approves annual budgets and
published financial statements, changes in the companys principal lines of
business, mergers, and acquisitions. In cases of mismanagement, the board
can replace company officers, including the CEO.
While it is not uncommon for directors to be handpicked friends or
subordinates of the CEO, the current trend in industry is toward much more
independent boards, even with a chairman who is not the CEO. The most
desirable board members are current or retired CEOs of other companies.
Boards sometimes also include an attorney with expertise in the industry. Less
desirable, but occasionally observed, are board members who appear to have
been selected for their political connections or their links to special-interest
groups. Board members should also have at least some minimum stock
ownership in the company, preferably before they are elected. The majority
membership of most company boards today is moving towards outside directors (not company employees or retirees). Key committees, such as compensation and audit, must be composed exclusively of outside directors. It is an
informal practice that board directors do not serve on more than three other
company boards and that these companies cannot be competitors, customers,
or suppliers of each other to any significant extent. A potential conflict of
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interest exists if a director is also a paid consultant or otherwise renders

services for pay to the company and this obviously should be avoided.
Directors should be compensated in relation to the time that they are
required to spend on company business. In many firms, this is dealt with by
paying an annual retainer plus a fee for each meeting attended; some firms
also offer stock options to directors. Board committee chairmen are usually
paid an additional retainer. Board members should not receive pensions; after
all, they are not employees.
The point of the foregoing is not to instruct the management in publicly
owned companies about how their board of directors functions. Rather, it is
to provide some background on the real issue, which is the functioning of a
board of directors in privately owned companies. Boards of privately held
firms are often inactive, perhaps consisting only of the owner(s) and possibly
some family members, and meet once a year, at least on paper, to satisfy legal
requirements. This is a common mistake because it cuts off the CEO and any
other owners from independent, fresh points of view of the company and its
business. For what is a nominal cost, independent board members with
experience in the industry can contribute significantly to strategic planning
and overview of operations. A valuable purpose of a board of directors is to
offer objective counsel and advice to the CEO that is often otherwise difficult
to obtain.
Companies with overseas operations may be relieved to know that most
countries around the world generally follow the board of directors model
described above, even if their elections are pro forma and only insiders serve
as directors. In some, the CEO is called a managing director rather than a
president. In virtually all cases, the CEO has a powerful influence on the
board of her company.
The corporate governance model used in the Federal Republic of Germany
is an exception to the ones described above. Germany has required a singular
form of stewardship for boards of publicly owned corporations through its
co-determination law. At the top is the supervisory board (Aufsichsrat),
which is the equivalent of the board of directors in other countries. The
supervisory board is required to consist of 20 members, divided equally
between representatives elected by shareholders and those elected by employees. The shareholder side usually consists of industry executives, banks (who
are permitted to own stock in corporations, unlike in the United States),
university professors, and heads of industry organizations, while the employees
are represented by labor union officials. Each member has one vote. The
supervisory board, in turn, elects members (executive directors) of the management board (Vorstand) who are responsible for running the company. The
supervisory board also has the power to remove executive directors from
office, but it is very rare for this power to be exercised. The management
board has a chairman, whose position is one of primus inter pares, not CEO
in fact, the CEO does not exist as such. The chairmans authority is limited
in that he cannot dismiss any of the other executive directors; his powers are
largely exercised by virtue of the respect given his position and views by the
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other directors. Essentially, the management board is a legally mandated

executive committee (in U.S. companies, the executive committee is an
optional management group and is usually composed of the corporate officers
or division heads). Each executive director is responsible for those business
sectors assigned to him by the board but is often dependent on other directors
for some elements of support, such as R&D, manufacturing, personnel, etc.
The executive board as a whole develops budgets and sends them to the
supervisory board for approval. This structure reflects the German cultural
desire for labor to have meaningful input into corporate activities in exchange
for a certain amount of labor peace. It also reflects a certain mistrust of
concentrated power and results in a somewhat slower response to change
than organizations with more comprehensive authority vested in a single
individual.
Chapter 5
Managing for Success

Chapter 1 broached the topic of setting goals and developing business plans.
Part of drawing up and carrying out business plans is utilizing both the formal
and informal elements of your organization and personnel. Integrating the
functional efforts of different units is essential to achieving your goals.
5.1 Planning for Success

Why do you really need a business plan? If you are running a small business,
you may feel that a business plan is unnecessary. Sorry, that is the wrong
answer. Every company needs a business plan to bring some focus to what
it does and how to react to changes as they inevitably occur. Business plans
do not need to be lengthy, nor should they be. The primary reason for
conciseness is that it is impossible to forecast business conditions with great
accuracy and certainty. Therefore, it is essential to have plans that briefly
cover the range of likely possibilities, from high to low. This allows the
company to be prepared for changes from original forecasts. The plastics
industry has been subject to increasing volatility in demand during the past
decade, and it is unlikely that this condition will improve in the future. Changes
in demand are almost immediately felt by suppliers due to the increased use
of supply-chain management techniques, which immediately transmit fluctuations systemwide. With inventory levels designed to be at low or even justin-time levels, a drop in, say, automobile sales, can translate almost instantaneously into a shutoff of parts requirements that is felt throughout the entire
system, from processor to distributor to compounder to polymer producer.
An upswing in demand will have the opposite effect a sudden influx of
orders for immediate delivery. It pays to have sufficient rapport with your
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70
customers that you can come to some agreement with them to provide for
some cushioning from such rapid changes.
Demand volatility is only one source of deviation from forecast or target
revenues. New product development can be thrown off track by unexpected
difficulties in scale-up. Your customer can be acquired by another company
that decides to scale back or even discontinue the line of business on which
you were counting. An unexpected breakthrough at a customer may suddenly
ramp up the demand for one of your products. You need to have at least
considered what you might do should any of these events take place and
require that you react on a timely basis. Highlow contingency plans (keep
them simple and not too detailed) will answer this need and allow you to
move into action quickly.
Plans are not merely a collection of objectives and considered tactics on
how to reach them. They must include a list of the resources human,
financial, and hardware required to execute them. As described in
Chapter 7, you also need to assess how you will utilize those resources by
their quality; the best must be assigned to the most productive projects.
Business plans may differ according to their objectives and the time period
covered, but the rest of the elements are essentially the same. I recommend
that you develop a business plan that outlines what you want to do over the
next 5 years, but with the principal emphasis and details on the next 12
months. Remember to quantify wherever possible. If you are a successful
small businessman, eventually you are likely to grow to the point where you
will need third-party investment in your company. Your business plan will be
a strong talking point for you to show that you understand how to run a
business on a well-considered and professional basis important nonquantitative considerations for someone who is contemplating investing in your
company. In fact, if you are seeking to get a bank loan or to sell your company,
it will be essential for you to have a business plan with some documentation
to show that you actually use it.
Just what comprises a business plan? Here are the principal components:
Purpose (also called mission or vision) describes succinctly what comprises
the companys principal business and activities.
Business goals are a statement of what you wish to accomplish during
the time period of the plan.
History and analysis include where the company has been, where it is
now, and the choices as to where it will go in the future, as well as
identifying the companys principal strengths and weaknesses, opportunities, and threats and how you propose to deal with them.
Objectives are the intermediate milestones to be achieved on the way
toward attaining your goals.
Projects and programs are specific details on the implementation of what
you wish to accomplish. These may be in outline form and confined to
key actions or activities.
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The sales and marketing element is the most critical part of the plan and
everything else should flow from that. If the company is not generating income,
then it should not be incurring expenses. You should also consider applying
the old travel rule (take half the clothes and twice the money you think
youll need) to sales and expense forecasts, at least to some degree. If your
team is relatively inexperienced and the numbers therefore less reliable,
shading sales forecasts down and expense forecasts up will give you some
breathing room in the event that the forecasts are not as accurate as you
would wish. Accompanying financial details need to be a fundamental part
of your business plan, showing the amount and timing of expenses and
income, cash flow, and, where appropriate, return on investment.
5.2 Managing and Integrating Functions

In order to achieve sustained earnings growth, successful managers must learn
to integrate the direction of functional groups, not centralize their direction
(as is often and erroneously done). Centralized management puts all decisionmaking authority in one place; integrated management distributes decisionmaking authority to the lowest level capable of handling it but ensures that
all decisions are coordinated toward achieving a set of common goals.
As touched upon earlier, managers need to be aware that the majority of
the key people they are directing are knowledge workers. Knowledge workers
must be managed differently than others. Their contributions come from their
own creativity, not from being directed or told how to develop something,
be it technology or market strategies. This requires relying upon open sharing
of information and decision making, not a command-and-control style of
management.
If functional groups do not closely intermesh and coordinate their activities,
costs will rise, customers may be lost, and profitability will certainly suffer.
Management must never allow empire building or turf wars to take place
within or between functions. These kinds of negative activities are focused
inward on personal objectives instead of outward on meeting customers needs
and corporate goals. Management needs to take firm action to prevent them
from starting and drastic action to stop them if somehow they have taken
place. Make it clear to your subordinates that their appraisals and their job
security depend on how they are contributing to company objectives, not
on winning some sort of perceived internal competition. Individuals must treat
each other with respect and courtesy. As Peter Drucker says, Attack issues,
not people. If you find your time being spent resolving disputes over who
is responsible for what, you need to address the more fundamental problem
of why these arguments are breaking out. Much is made of General Electrics
use of internal competition to push growth faster (e.g., rival product marketing
groups competing for the same business at the same customer), but this
appears to be the exception to the rule because examples are lacking of other
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companies that have been able to make this idea work successfully on a
sustained basis. Even GE walked away from this approach after a few years,
as the result could only be the cannibalization of business in hand rather than
the creation of new business.
The use of project teams and committees is central to integrated management. The input of each affected function is thus made part of the solution
to dealing with problems and improving operations. Committees do much of
the coordination of the various functional groups in a plastics industry company without requiring that senior management be directly involved. Standing
committees are needed to handle matters that are routinely repetitive, such
as raw materials qualification and purchasing. In the latter instance, research
and development (R&D) can present the formulation characteristics of the
materials under consideration; manufacturing, the processing characteristics;
marketing, the customers preferences; and purchasing, cost and logistics
considerations. Committee meetings, although despised and reviled, are really
useful and necessary as interactive communications media within the company.
Project teams are committees that have a specific, short-term purpose and
disband once this purpose has been accomplished. They include members
of different functional groups or different engineering disciplines. An example
might include the development of a major new product for a large customer
or even just putting together a logistics system that will coordinate the business
requirements of the companys largest customers. If the team works so well
together that important synergy would be lost if it was disbanded, then
restructure it as a committee. Otherwise, require that teams be broken up
and the members reassigned when they have achieved their objectives. If the
team is not achieving required milestones, reconsider its objectives and the
resources assigned.
A word of caution: create committees sparingly, keep their membership
size limited (no more than six would be wise), insist that their meetings be
short (preferably less than an hour), and have standing dates never more
frequent than weekly. Poorly run committees are a terrible waste of valuable
time and can damage morale. Well-run committees keep everyone in the
loop, maximize efficiency, and minimize mistakes. The secret to successful
meetings is for the chairman (an honorable word for both genders) to stick
closely to an agenda that addresses only key issues, getting agreement on
work assignment scope and milestones before adjournment, and handling
issues with non-contributing members outside the committee meetings. Do
not allow committee members to interrupt meetings by taking phone calls.
The agenda should be sent to the participants with enough time to prepare
properly; adequate preparation alone is a big step toward keeping meetings
short and productive. Spread committee work around. It is good experience
to rotate membership among different people in the same functional group,
and it keeps the diversion from the groups primary tasks to a minimum. It
is a telling sign that committee-itis has set in if customers, suppliers, or
other employees find they can virtually never reach people who are members
of committees because they are always tied up in meetings.
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5.2.1 Research and Development

Plastics industry research and development includes basic research into materials and processes, product/process development, application development,
and technical service. Few companies other than the largest polymer producers
can justify investing in basic research, and even this area is often supplemented
by sponsoring research at universities. More than 95% of most industry R&D
is in the nature of development and service to the companys customers. The
most successful companies find that at least 25% of their current sales come
from products that did not exist 5 years ago. A strong R&D effort is fundamental
to the success of any company in the polymer manufacturing, compounding,
processing, or equipment/additives sectors of the industry. Only distribution
has no real need for R&D. New products and processes are the lifeblood of
sales and earnings growth in a competitive marketplace, but this cannot be
taken to mean that R&D has carte blanche to do whatever catches its fancy.
At least 90% of all R&D that looks promising in the laboratory should be
vetted by marketing to confirm that a potential market exists and by manufacturing to ensure that it can be produced at acceptable quality and cost
levels. That leaves 10% for creative R&D; that is, what else can we make,
starting with what we already have?
As a bad example, take the case where the R&D of a large commodity
polymer producer developed a new engineering polymer that exhibited an
excellent balance of properties. Without obtaining more than minimal market
research or going through the full range of production scale-up steps, the
company committed to a commercial-scale plant. The new product was
sampled by customers and initial orders obtained. Then, some applications
began to report field failures and several molders complained that the product
showed variable lot-to-lot processing characteristics. Manufacturing found that
the plant design would not allow the product specifications to be met at
anticipated costs. After 18 months of trying to put out these fires (relatively
unsuccessfully), management decided get out of the business by selling the
plant and product line but found no takers at anything close to its cost.
Eventually the plant was closed and the entire project written off, at a
staggering cost in the range of nine figures. The manager in charge of the
project was reassigned but lower level personnel were dismissed as part of
the restructuring. Admittedly, this is an extreme case, but it happened to a
company with seasoned management that evidently believed that developmental specialties were not that different from well-developed commodities.
It is instructive to note that another commodity-based company was also trying
to develop an equivalent product at this time but never invested in production
facilities and was able to close down the project before it siphoned off so
many investment dollars from other projects.
One of the most difficult but critically important jobs a manager has in the
plastics industry is to successfully integrate technology and marketing. Plastics
materials, even commodities, cannot be sold like detergents. Potential and
actual customers must know how to use them in order to gain the benefits
of their features and pay for the value they confer on an application. The
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speed and relative success of this learning process (e.g., time to market) can
make or break the profitability and competitive advantage of a new product
for a company. The most successful companies in the plastics industry
combine their product development and marketing groups into teams. This
ensures that the companys technical resources are used to meet customer
needs with the least amount of filtering in communications and time loss.
Technical marketing (integrated R&D and marketing) includes characterizing products in terms of the properties used by design engineers for certain
classes of applications. For example, short-term mechanical strength and
stiffness values may serve to make initial material selections but are not
accurate for predicting long-term performance. Marketing must assess which
classes of applications offer sufficient business potential to justify the cost of
obtaining such data as creep and fatigue resistance, with R&D providing the
data. Marketing must also obtain customer feedback to let R&D know if the
data are sufficient to allow the application to go forward or if the product
requires modification. If the product must be modified, R&D will have to
advise marketing about the feasibility and cost (this may require involving
manufacturing), and marketing again will have to determine the market
potential over a range of prices to arrive at a decision.
Another area where R&D and marketing must cooperate closely is costreduction projects. When R&D has been tasked to reduce product formulation
and process costs, the result may not be exactly the same product that has
been approved by customers. Marketing should ensure that the customers are
willing to accept a modified material without requalification this is often
an opening for competitors to have their products qualified at the same time.
It is dangerous to regard cost-reduction programs as an entirely internal matter.
Many companies also offer design services to qualified customers as part
of their sales and marketing package. The services of computer-aided design
(CAD) and computer-aided engineering (CAE) offer a benefit to large customers that may not be available from other competitors. They also provide some
assurance that the application will be a successful one because design problems can be resolved before tooling is built. Although many firms prefer to
maintain CAD/CAE services in-house, sometimes they can be contracted out
successfully.
5.2.2 Sales and Marketing

It has been said by some that marketing savvy seems to be in short supply
in this industry while sales know-how seems to be in abundance; only a few
companies seem to know how each works. Everyone knows what the term
sales means: getting orders from specified customers. The meaning of marketing seems to be less well-defined. In my opinion, the problem is basically
a lack of understanding of what marketing actually does, how to use it, and
how to integrate marketing with sales. For one thing, lets clear up one point
now: marketing is not a series of advertising campaigns or a blitz of press
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releases, nor is it solely involved in developing new customers. Marketing is

much more than this. Marketing responsibilities include the following:
Identify, analyze, and aggregate a series of individual similar customers
and applications into markets. For example, a transparent polymer such
as polycarbonate might be sold to customers for optical applications that
might be further classified as consumer and automotive, opening up further
potential uses.
Identify and project trends in markets to help the company anticipate and
manage the coming changes. An example would be the commoditization
of desktop computers, with attendant decline in growth rates and increased
offshore sourcing.
Build recognition of the companys products, services, and conduct of its
business into respect and loyalty among its existing customers; then extend
this recognition to potential new customers. The use of branding (promoting the reliability of your product vs. lesser known or even generic
products) is not limited to consumer goods. DuPonts Zytel brand nylon
and General Electrics Lexan brand polycarbonate are good cases in point.
Both companies have worked hard to establish their brands as premier
products through advertising, news releases, and trade shows. Both companies have found brand recognition a useful tool in building consumer
products business by licensing customers to use their brand names in
return for an exclusive supply position. These customers see a benefit in
the form of the increased consumer acceptance of products made from a
promoted and recognized brand such as Zytel or Lexan. While this technique may not necessarily win a pricing premium, it can often tip a
customers choice between a branded product and an unknown one to
the branded material, all other things being equal.
Collect, analyze, and transmit the information necessary for development
of the companys future business plans.
Develop an understanding of how the company is perceived by its customers, primarily in terms of strengths and weaknesses. Without customer
satisfaction, a company cannot grow and prosper. It is an important
responsibility of marketing to know how the market customers regards
the company and recommend ways to improve this regard, as well as to
build on the position that has been revealed.
Sales and marketing are complementary, not competing groups.

No one seems to have a problem with knowing what sales people have
to do, but sometimes they do seem to have a problem understanding how
they have to do it. Sales work does not consist of a big entertainment budget.
If purchasing agents were so easily seduced, their bosses would notice quickly
that they were not doing their job of buying the best for the least. Good sales
representatives will identify all of the important decision makers in each
company and make sure that they communicate with them on a regular basis.
It is not enough to know that the company is meeting the current needs of
the customer. One must also know what their future needs will be: whether
there will be more or less business to seek, what the customers financial
situation and business goals are, etc.
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An important aspect of sales is developing formal purchasing contracts

with customers, both to establish enough stability at the account that development costs can be justified and to reduce opportunities for competitors to
take away business. If a customer is only making spot buys, then you are in
a weak position; this situation also suggests that knowledge of the customers
needs is lacking. A purchase agreement should be of benefit to both parties
the buyer should receive a better price, based on total purchases and some
security of supply, while the seller should receive some assurance of minimum
volume and some security of continuing business. A purchase contract will
be much stronger if the customer buys multiple products from you and the
combined purchases count toward a rebate or discount. While a seller may
wish to tie up all of the customers possible business, this is seldom wise on
the part of the buyer. Attempts by a customer to demand retroactive discounts
for past business as a condition for present and future business, as has
happened in the automotive industry, are a sure sign of trouble. Such demands
should be turned aside, because giving in to them will only invite more and
greater demands. Customers who make such demands should be examined
carefully to determine how business should be conducted with them in the
future, if at all.
5.2.3 Manufacturing
Manufacturing is all too often taken for granted, but its consistent, qualityconscious, timely, and cost-effective execution is crucial to the success of any
non-service company in the industry. The leading firms of the industry have
adopted Total Quality Management (TQM), Six Sigma, or other such techniques
to ensure continuous improvement in consistent quality, which almost always
also results in important cost savings.
Manufacturing consists of processing raw materials into finished products;
in many companies, purchasing is also part of manufacturing. Your suppliers
of raw materials plus the logistics companies that transport and store these
materials constitute your supply chain. You are only doing half the job if you
are managing only your own production scheduling and not the rest of the
supply chain. It is impossible to control costs and quality if you have not
brought your suppliers on board as partners through regular consultation
about your specifications, logistics, how to reduce and control costs, etc. These
matters should never be imposed on suppliers but rather developed jointly
with them. ISO 9000 certification for your company and your suppliers is an
integral part of assuring globally consistent manufacturing quality, just as much
as TQM or Six Sigma programs are.
The industry journals are filled with information about software programs
known as enterprise resource planning (ERP); possibly the best-known provider (but certainly not the only one) is SAP, a German software firm. These
systems allow a company to employ a relational database globally that keeps
track of all its purchases, inventory, manufacturing scheduling, and shipments.
Supplier/customer-compatible ERP systems can effectively integrate the
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production processes of both, with significant potential savings and shortened

lead times. Early ERP supply-chain systems were the forerunner of much of
what is called e-commerce today. In addition, a properly enhanced ERP system
enables management to analyze its return on investment in a variety of ways.
The installation and training costs for these system are substantial (as much
as $200 million for very large, globe-spanning companies) and have therefore
been limited in use to date. The time required to train personnel in their
usage normally varies with their familiarity with information technology (IT)
systems; six months to a year is not unusual. Much less expensive installations
(in the range of middle to low eight figures, including software, consulting
assistance, and training) are becoming available and are being marketed as
suitable for mid-size firms (down to $200 million in annual sales). One method
for keeping these costs down and accelerating the systems implementation
is to use one of the standard templates offered by the software supplier and
avoid customization unless your requirements are justifiably inflexible. Customization costs more, takes longer, and raises the risk of running into bugs
down the road. All of these systems require annual maintenance, as would
almost any asset.
Still smaller, one-site systems are available for processors at costs that are
in the low six figures. These smaller systems are focused on manufacturing
and therefore may lack some of the sophistication of larger systems, but they
are easier to install and use. They are a good way to become familiar with
the concept of ERP instead of jumping in with an attendant much larger
investment of time and money (and risk).
The growing use of e-commerce is testimony to the efficiency of using
either private networks or the Internet for exchanging order and inventory
information between suppliers and customers. The technology involved is
relatively new and the security of transactions is still being upgraded. Furthermore, installation costs are coming down as e-commerce gains acceptance. It
appears that large corporations are either using it now or are in the process
of converting to it, while smaller companies are still studying the feasibility
and justification. The pressure to use e-commerce is primarily coming from
large buyers; they want all of their suppliers to use e-commerce systems so
as to trim costs uniformly.
The rise in the use of e-commerce for supply-chain management (SCM)
has come about almost simultaneously with another phenomenon of the 1990s:
reducing the number of suppliers. Fewer suppliers usually mean more purchasing leverage in terms of lower prices and more services included in the
price. If practiced correctly, SCM also offers lower transaction costs for both
parties. Having fewer suppliers should lead to a closer relationship with the
customer, a greater ability to provide more products and services than before,
and joint participation in new developments. A reduced supplier base presents
very distinct risks, however. The smaller supplier base can expose a company
to delivery delays and product quality problems without the ability to turn
immediately to another supplier to take up the slack. An underfinanced
supplier could go out of business or be acquired by someone who wants to
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change the customer base, without a qualified replacement being readily

available.
The ultimate reduced supplier base is to source from just one company.
Perhaps the most serious drawback to this idea is the likelihood of being cut
off from new products and technologies developed by suppliers with whom
you no longer have a relationship. As an example, a parts division of one of
Detroits Big Three automobile manufacturers had an exclusive supply contract
with a major polymer producer. A European competitor of this polymer
producer called on the parts division with a proposal to reveal a brand-new
technology for making hollow parts by injection molding, in return for being
accepted as a second source for material. The parts division refused, citing
their exclusive contract and then asked their regular supplier to furnish the
same technology to them. The domestic producer had no such technology
and it took 18 months for them to come up with something similar. In the
meantime, the European competitor had gone to another one of the Big Three
and had their proposal accepted almost immediately. The estimated savings
to the lucky Big Three company that took up the European proposal ran into
millions of dollars and helped them to increase their market share. Thus, the
exclusive supplier philosophy wound up costing many, many times any
possible savings from purchasing leverage.
5.2.4 Administration
Administration is a sort of afterthought for some, but it has an important
impact on a companys performance. Administration has a number of
components:
Human resources (HR) must serve managements needs to find, hire, and
retain top-quality personnel. HR has to maintain current information on
industry-wide compensation and benefit practices, as well as keep up with
frequent regulatory changes in this area. HR also has to administer the
performance review system to make sure that it is running on time and
properly.
Finance must manage the companys cash flow so that the company
collects and disburses on a timely basis, at minimum net cost. This
responsibility also includes maintaining lines of credit at banks and monitoring the stock and bond markets for suitable opportunities to raise money
if the company is publicly held. Such activities must be conducted with
the utmost integrity and transparency, as recent accounting scandals have
demonstrated. It is not enough to be merely legal.
Management information must provide necessary data accurately and on
a timely basis to every level of management that needs these data to
perform their duties. At one time this was little more than an extension
of the finance group. Today, it provides critical information to all functional
groups, although accurate and timely financial data are still the most
important portion.
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Credit must correctly and continuously assess the ability of customers to

pay fully and on time and communicate this information to management
promptly. A few bad debts are an acceptable risk associated with aggressive
selling, no bad debts indicate too cautious an approach, but many bad
debts injure the companys financial performance unnecessarily. Credit
insurance is not that expensive and may present a reasonable option if
management is uncomfortable with the level of risk they perceive in the
credit-worthiness of their customer base.
Legal must ensure that the companys contracts protect the companys
interests, particularly to offer some protection against lawsuits without
merit. To obtain the best results from the companys attorneys, tell them
what you want to do and let them advise you on the best way to do it.
Realize that anyone can sue anyone anytime for any reason in the United
States (frivolous lawsuits are often allowed to proceed), but do not stand
in fear of this possibility. Just as with credit decisions, some balancing of
risk in legal matters is proper; otherwise, you will find yourself taking the
perfectly safe legal position on everything (e.g., No, we cant do that; its
too risky). Legal is also in charge of hiring and supervising specialized
counsel when more esoteric areas of the law are involved, such as antitrust
and patents.
5.3 Managing Costs

One of the most challenging jobs a manager has is containing costs. That old
clich about doing more with less seems to be very much in vogue today,
whether business is growing, slowing, or stagnant. The press seems to run
nothing but articles about plant closures and layoffs, and managers are under
pressure to show that they, too, can make the tough decisions to cut staff
and shutter manufacturing sites. The trouble is, these are not tough decisions;
they are easy ones. Everyone else is doing it, so it becomes an easy way to
avoid criticism by following the crowd. Yes, it can make sense to shut down
(permanently) plants that cannot be economically modernized, particularly if
the capacity is not being, or is not likely to be, profitably utilized. Yes, it can
make sense to divest a part of your business that is marginally profitable and
is not growing. Yes, it can make sense to restructure your organization to
flatten the management pyramid, eliminate overlapping positions, and separate
truly marginal performers. Yes, you can drop customers whose credit seems
risky. The trick is to avoid overdoing all of these things; presumably you have
been doing them all along during good times as a part of good management
practice, so these problems ought not to exist during bad times. All too often,
managers feel under pressure to conform to what others are doing rather than
only doing what their circumstances require.
A further caution about trying to achieve profitability solely by cutting
costs is warranted. Cutting R&D is sacrificing the future for the present. Less
R&D means fewer new products, which in turn leads to slower sales growth
and lower long-term profitability. Cutting manufacturing capacity reduces the
companys ability to respond to unexpected market opportunities. Divesting
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non-core but profitable businesses may cut cash flow, increase cyclicality,
and close the window on unforeseen opportunities outside of traditional
markets. Concentrating primarily on cost cutting to improve profitability is a
defensive measure and invites offensive-minded, aggressive, growth-oriented
competitors to test your willingness to protect your markets.
Staff reductions, product line revisions, and business divestitures are discussed in more detail in Chapters 6, 7, and 8, respectively.
One area for cost savings that is not always thought of in smaller companies
is working capital reduction. If the business is reasonably profitable and
generating good cash flow, management tends to overlook the amount of
money that can be tied up in accounts receivable and inventories while
faithfully writing checks for accounts payable within the standard 30 days. A
good follow-up system for slow-paying customers is worthwhile, but it may
prove easier to raise their prices by a percent or two than to dun them for
payment if their credit is good but they insist on paying in 60 days. Some
suppliers may be agreeable to extending your payment terms; it does not hurt
to ask. The greatest savings, however, are likely to be found in your inventory.
You need to establish standards for inventory turnover and then work on
improving them. Can your vendors ship small quantities on short notice
without necessarily penalizing you on price? Are you insisting that your
customers accept up to 10% overruns on custom work? Do you dispose of
slow-moving inventory on a regular basis to free up space and reclaim working
capital? If you are able to reduce your working capital needs more or less
permanently, this is cash freed up to invest in other needs or even to pay
dividends to shareholders. Do not overlook the spare parts kept in maintenance; they are a form of inventory, too, even if written off when purchased.
Make sure that spare parts are kept within reason and that you are not tying
up space and funds by holding onto equipment and parts that are unlikely
to be used in the near future or cannot be obtained quickly in an emergency.
What else can you do improve performance if cost reduction is not the
only answer? R. Mooney of Deloitte & Touche suggests finding a balance
between profitability and growth, creating separate business structures for
operations that have little in common, improving the use of manufacturing
information technology to increase productivity, and being alert to protect key
customers from the inroads of competitors.
Chapter 6
Staffing for Success

It may be a clich, but it is true that people are a companys most important
asset. Without the right people, the organization, physical plant, and products
of a company cannot succeed. This chapter will deal with how to find, train,
and retain the best people. The plastics industry has some special needs in
this regard, which we shall see.
Staffing is defined here as consisting of recruiting, training, evaluating,
promoting, and firing personnel. The quality of the companys personnel must
be the best that management can find or management will have self-imposed
difficulties accomplishing its plans. The discussion of staffing that follows is
concerned with professional personnel; plant and laboratory non-salaried
personnel are discussed later in less detail; discussion about clerical personnel
is omitted as such staffing is essentially the same in any industry. Matters of
compliance with government regulations are also not specific to the plastics
industry and are therefore best learned from experts in this particular field.
6.1 Recruiting
How do you find new employees? A number of ways are available, all of
which you will likely want to use at one time or another:
Classified advertisements are the most commonly used method. Trade
publications are the best media to use, although newspapers are useful
for attracting applicants for non-salaried positions. Never use blind ads;
people who are already employed will not respond to them in case their
own employers are the advertiser. Describe your business and the position
to be filled in sufficient detail so that you do not attract unqualified people.
Internet bulletin boards are another form of classified ads.
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Referrals from employees, suppliers, customers, friends are often the best
source of people who will fit well with the organization. These individuals
will want to work with others who have their same motivations.
Universities, technical, and vocational schools are another excellent source
of people, but these will likely be recent graduates and therefore inexperienced, except for cooperative students (as discussed later in this chapter).
Employment and executive search agencies are an expensive option (the
fee is usually 30% of the first years salary) but sometimes necessary to
find just the right person to fill a particular job.
Recruiting is a tough job; the legal restrictions on prior employers disclosure

of personnel data make it very difficult to obtain a meaningful evaluation of
a candidates previous job performance. While written tests may be helpful
for evaluating technical knowledge and writing skills, personality tests have
questionable validity for assessing potential performance in a given position
and thus may be subject to legal challenge. Recruiting, therefore, often comes
down to evaluating a candidates experience and behavior during an interview.
Because this process is too short to be more than merely an indication of
whether or not an individual will become a contributing member of your
management team, all new hires should be placed on probationary status for
the first 6 to 12 months, subject to termination at will (where this is permitted
by applicable state law). The objective for recruiting should always be to hire
the best-qualified candidates available usually those who have shown that
they are quick to learn and willing to work hard and never to sacrifice
quality for availability. It is a shameful waste of time and money to hire
questionable candidates merely to fill job openings as quickly as possible. To
paraphrase an old saying, Hire in haste, repent at leisure.
All offers of employment must be in writing, and the letter must state that
the terms offered supersede any verbal understanding. This is not just being
professional; it is protecting yourself and your company from misunderstandings. At the same time, do not count on any applicant who has been accepted
as an employee until the day that person actually shows up for work. It is
disquieting though true that a small but significant number of people who
have accepted job offers (perhaps 5%) will never actually come to work for
you and may never even notify you that they are not coming. It is also a
matter of common courtesy, as well as business ethics, that every unsuccessful
candidate who has been asked to submit a job application or who has been
interviewed should be advised promptly of your decision in a courteous,
business-like way.
People who apply for work with your company on an unsolicited basis
should receive the courtesy of a prompt reply that acknowledges receipt of
their application and indicates whether or not you have any interest. Regrettably, a surprising number of would-be applicants, particularly those just out
of college, do not take the time to evaluate whether or not a company would
have use for their qualifications; for example, a distributor would not be
seeking people for research and development (R&D). Do not take offense at
this laziness and immediately discard the rsum; rather, respond politely and
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point out, for example, that your company does not have such positions or
it only hires people with certain experience. You have a responsibility for
building both your companys reputation and that of the industry as being a
good place to work. One day that would-be researcher could find a job with
another company and be in a position to decide whether or not to approve
your products.
Then there are overqualified applicants. These have become an urban
legend candidates who have more education and experience than a job
requires but are rejected because they are overqualified and thought to be a
risk to leave as soon as they find another job. Frankly, most employers would
love to be presented with an overqualified employee, but they seem to be a
rare breed, living mostly in letters to the editor of industry magazines, complaining that no one will hire them. As long as overqualified candidates would
be willing to start out in a job that pays less than they might obtain in one
that matches their qualifications more closely, the odds favor their being hired
and being promoted as soon as an appropriate opening comes up. Alas,
it appears that the overqualified candidate is more likely to be someone whose
personality traits are a problem, rather than someone who knows too much
to hire. The following sections will explain what to look for in a prospective
job candidate.
6.1.1 Education
While I recognize that I am likely biased by my own education, an engineering
degree or at least a degree in a hard science (e.g., chemistry or physics) is
often an essential qualification for people seeking entry-level professional
positions in the plastics industry. This is a technical business above all else,
and anyone who cannot quickly understand the terminology and relationships
between materials and processes is likely to be lost for too long to make a
successful transition into being a contributing member of the team. At middle
and senior management levels, some education in business administration will
be increasingly useful, especially in the more capital-intensive segments of
the plastics industry such as polymer manufacturing.
A bachelors degree is often sufficient for most positions except in research,
where a Ph.D. can be desirable, particularly for polymer chemistry. Nevertheless, a masters degree may be very useful in manufacturing or plant engineering. A masters degree in business administration can be valuable for
general management as well as information management, sales and marketing.
The quality and comprehensiveness of MBA studies vary widely, however.
One needs to inquire closely about just what job candidates have studied and
what they learned.
While I am the happy beneficiary of maximum exposure to liberal arts
courses (history, languages, literature, etc.) in college in addition to my
scientific, engineering, and business administration education, it is usually not
advisable to recruit liberal arts majors directly from college. Nevertheless, this
educational background can be quite helpful for non-technical positions if
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one finds a job candidate who has also had progressive and substantial
experience in the plastics industry for, say, at least 5 years. Experience shows
that one will be much more successful by training a newly minted engineer
for positions in sales and marketing than by attempting to train a recent liberal
arts graduate in the technical aspects of the companys products for these
positions.
A number of universities and colleges have cooperative (co-op) programs,
where engineering students spend three 6-month periods working in industry
in between their four years of undergraduate study. Other schools offer
summer intern programs that allow students to work in industry for shorter
periods of time, but these are less effective. In my experience, graduates from
co-op programs generally exhibit more understanding of what is expected of
them and have a better grasp of how to use their education in the workplace
than do graduates of non-cooperative programs. Should you choose to hire
co-op students, then the institutions will ask you to do so on a regular basis,
which is a reasonable request. The co-op period also gives you a chance to
assess students as future possible permanent employees, without an obligation
to hire them. The students also have a chance to determine whether or not
this is the career opportunity that they want. All in all, this is a winwin
situation.
However good the graduates of coop programs are, it is most unwise to
limit your recruiting to graduates of just a few institutions. Try to blend together
graduates from a number of colleges and universities so as to avoid the
possibility of cliques of alumni forming. Should this situation arise, just the
appearance of favoritism that might accompany it can be devastating to morale.
If it does indeed exist, then you will have closed off the opportunity to hire
and keep motivated people who have fresh points of view and approaches
to the companys business.
6.1.2 Experience
Education is, essentially, learning from other peoples accumulated knowledge
and their experience from applying that knowledge. However, there is no
substitute for tempering and validating lessons learned in college by the reality
check one finds through ones own experience. Therefore, given a choice
between apparently equally educated candidates, one should usually favor
the one with more experience than the other, especially if the experience was
more extensive. Most engineers start out their careers in manufacturing or
R&D, which are great places to gain an understanding of the basics of the
plastics industry. At some point, however, they must also develop at least
some experience in marketing or sales, because this is industry, after all, not
academia or government. In fact, it would not be unfair to say that our industry
has had more than its share of unsuccessful top managers who failed mainly
because they had no significant successful prior experience in marketing and
sales, despite a good track record in technical positions.
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Take care to judge the relative quality of a candidates experience. For

example, did the individual have 5 years of varied, broadening experience,
or was it actually 5 years of the same experience repeated over and over
again? One way to discover the value of the candidates experience is to ask
for several examples of what that person has learned in the course of working
in the industry.
Many companies recruit directly from college, with the idea that they will
fill the pipeline by replacing more experienced people as they leave or are
promoted. Unfortunately, it is difficult to avoid high turnover with such recruits
perhaps 30% or more in the first 2 years of employment. Two leading
reasons for this turnover are:
1. College graduates who have no prior significant employment experience
frequently have unrealistic expectations of what it is like to work in
industry. If they cannot bring their expectations in line with the reality of
the work environment they are in, either they will quit in order to find
some other environment more closely matching their expectations or their
work quality and quantity will decline and they will adversely affect the
morale of others. This is a good reason to hire co-op program graduates,
who have 18 months of industry experience before they look for full-time
positions.
2. Gauging the potential performance of college graduates without a work
history is difficult. Gauging the quality of the education the candidate has
received is also difficult, particularly if no one doing the recruiting has
seen recent graduates of a particular institution in action. If, despite training
and counseling, a college graduate does not show above-average performance during the probationary period, he should be terminated. If you
are willing to accept average performance, then at least recruit someone
with prior experience, as they will likely make fewer mistakes even if their
output is not the highest.
6.1.3 Personality Traits

With rare exceptions, it is critical to select team players for todays integrated
management of different talents to overcome problems. The exception may
be a research genius that has just the right training and experience to come
up with breakthrough technology for the company. Lone wolf personalities,
particularly in sales, manufacturing, or administration, will cause real problems
in reaching goals. Look for these traits by asking about the candidates previous
work experiences and what they liked best and least, especially about their
supervisors and colleagues. People who have trouble getting along or communicating with others are unlikely to act any differently if you choose to
employ them.
Occasionally, you will come into a position where you did not select your
subordinates and you find that one or more of them do not meet these criteria.
You certainly should attempt to work with these people to help them modify
the way they work with others, but do not expect miracles to happen. You
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are no more likely to see them change than are people who enter into marriage
expecting to change their spouses. You will then have to decide whether their
particular talents are so great as to require an exception or you should
encourage them to make a career change.
Potential employees should also have a minimum level of self-confidence,
based on their experience with successfully overcoming obstacles and solving
problems. Otherwise, they will be afraid to take even small risks and will
almost certainly make poor supervisors because they will be reluctant to
delegate authority. Self-confidence should not be confused with self-esteem,
which may arise from a false sense of accomplishment. Questioning candidates
about how they have handled problem-solving in the past should reveal
whether or not their self-confidence is justified. Arrogance is a quality to be
avoided entirely.
Finally, consider these thoughts from former U.S. President Calvin Coolidge:
Nothing in this world can take the place of persistence. Talent will not;
nothing is more common than unsuccessful men with talent. Genius will not;
unrewarded genius is almost a proverb. Education will not; the world is full
of educated derelicts. Persistence and determination alone are omnipotent.
The slogan press on has solved and always will solve the problems of the
human race.
6.1.4 References
By all means, ask for references. Yes, these references are going to be a
selection of people who the applicant knows will speak favorably of him but
you can still learn something. Always ask for specific examples of how the
applicant carried out assigned tasks, staying away from meaningless generalizations. For example, do not ask, How well does X get along with fellow
employees? Ask instead, Can you tell me specifically how X handled situations with others who disagreed with her ideas? If an applicant cannot furnish
at least three references that are familiar with his work history, this by itself
should be regarded as a caution sign.
Do not overlook your own contacts at companies where the applicant
worked or with whom he came in contact in the course of work (e.g., sales,
purchasing, and engineering). Sometimes these sources will give you more
useful information than you can obtain from anyone else. The least likely
source of worthwhile evaluations of a candidate is likely to be Human
Resources; the most useful source is likely to be your candidates former boss.
6.1.5 Employment Agreements

Companies in the plastics industry often have need of protection from the loss
of trade secrets walking out the door with departing employees. The industry
also has a history of employees leaving firms to start up or join competitors.
The best way to protect the company from such events is through an employment agreement. The agreement should include language to prevent use or
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disclosure of your trade secrets to anyone who is not authorized by the

company to have access to them, as well as barring the employee from
competing with the company for a reasonable period of time (e.g., 12 to 18
months). The geographic area covered by the non-compete agreement must
also be reasonable and appropriate to the employees job. For example, a
salesman in New England could not normally be restricted from working for
a competitor in California. If a former employee can document that the noncompete clause is keeping him from finding a job, despite good faith efforts
to obtain one that fits his qualifications, then the agreement should provide
for some financial compensation during the period.
Non-compete agreements must be signed as a condition of employment
before someone joins your firm; many courts consider that requiring an existing
employee to sign an agreement as a condition of remaining employed is
coercive and therefore unenforceable. Non-compete agreements are not
enforceable in some states unless they are part of the acquisition of a business.
Even then, courts in these states may severely limit the geographical area in
which the non-compete agreement is enforceable.
Obtaining legal relief from illegal use or disclosure of your trade secrets
requires you to inform your employees as to what you consider to be secret
and taking the necessary steps to prevent them from being learned by
unauthorized personnel, such as:
Requiring escorts and visitors badges for non-employees entering the
premises
Marking appropriate areas as off-limits to unauthorized personnel, possibly
requiring a pass or key to enter such areas
Reminding employees periodically that the company does have trade
secrets and that they are to be protected as such
Using coded names or symbols instead of conventional names or symbols
for ingredients in secret formulations
Identifying confidential information as such
In regard to the last point, do not mark everything confidential or it will be

obvious that this is a sham. Confidential information should also be locked
up when it is not being used. Customer lists in particular cannot be considered
confidential unless they would be difficult to assemble and you make a genuine
effort to protect them. If you do not treat your secrets as confidential, a court
will not do the job for you.
Another element that should be in an employment agreement for technical
personnel is language spelling out that the employee is being hired to invent
and that no additional compensation is automatically due to that employee
for producing successful inventions. You are not barred from rewarding your
employee for a job well done, but you are not required to do so, either. There
are some locations where the law provides otherwise (e.g., Germany) and
inventors are legally entitled to a share of the royalties from any patented
inventions they create, even while using company time, money, and facilities.
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6.2 Training
Hiring a new employee is a job only half done. New employees must be
trained in the business and procedures of the company. Established employees
also require training to ensure that they stay abreast of the technology of the
industry and that they are prepared for promotion when the time comes.
Training comes about through job experience as well as formal classroom
instruction.
6.2.1 Job Enrichment and Rotation

One way to add to a subordinates experience is to broaden the assigned
duties. It is often a bitter joke that such job enrichment amounts merely to
more work for the same compensation; do not make this mistake. If the
position carries more responsibility than before, then it should certainly carry
more compensation than before. Even if the assignment is truly a lateral move,
offer some benefit, such as a new title or a better office, to encourage the
individual to make the most of the opportunity. It is a good idea to transfer
promising employees between functions at intervals of about 3 to 5 years.
Employees whose experience is limited to just one area are not well qualified
to move into positions where they must direct subordinates in other functions.
A smart, hard-working engineer who has worked successfully several years
each in manufacturing, R&D, and sales/marketing has taken important steps
toward becoming promising upper-management material.
Job rotation also helps keeps people from getting stale. While individuals
vary as to how long they should remain in the same general type of position
before they start to lose interest and enthusiasm, a maximum of 5 years is a
good rule of thumb. In small companies that simply do not have enough
positions to offer regular changes of assignment, the time frame may be
lengthened to 10 years, but rarely more. In this, as in most other things,
moderation is wise; time well spent in a position builds expertise, something
that is just as desirable as a diversified background.
A number of companies move people around geographically in the course
of job rotation, even if similar positions are available at the same site. The
reasoning is usually that these firms want the employee to be exposed to
different local business conditions and that the change should be made as
soon as an appropriate position is open, no matter where it is. Some suspect
that the management in some of these companies is also trying to test an
employees willingness to accept any assignment given. While an occasional
move is normal, even desirable, in the course of a business career, constant
geographic relocation is most certainly not good practice, nor should people
be penalized if they refuse such moves. This is an age of dual-career families.
If one partner is offered a job in a distant location but the other is unable or
unwilling to follow, then a problem has been created that is going to adversely
affect the performance of the individual involved. Even if the family has a
single breadwinner, uprooting people can be traumatic, especially for children
and particularly if it means leaving behind extended family members (e.g.,
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grandparents, aunts and uncles). Furthermore, management should be encouraging the development of community ties, not disrupting them. As a policy,
individuals should be able to make their own career decisions, not have them
forced upon them, or the company will be creating significant long-term
problems with employee loyalty and job performance.
At any rate, the objective should be to salt the middle- and upper-management ranks with at least a few people who have experience in more than
one environment, function, product, market, or discipline. The process is not
inexpensive but is essential to avoid having a company of one-dimensional
managers.
Engineers and scientists have acquired something of a reputation as not
possessing sufficient people skills to make good managers. While I believe
this is a weak generalization, unfortunately it does have some basis in reality.
Technical people are not inherently poor managers; it is just that their experience in managing others in the technical sphere is not necessarily applicable
in other functions. Engineers and scientists have to supervise technicians very
closely (micromanage), but micromanaging is a shortcoming that any supervisor can develop. It is at the next level of technical management that a
limitation can develop, where managing is often more consultative than
directive in nature more hands-off than is generally needed in marketing
or manufacturing. The single biggest limitation of engineers and scientists
becoming successful senior managers is much more likely to result from a
lack of experience in other functions, especially sales and marketing, rather
than from a lack of people skills.
6.2.2 Continuing Education

The constant evolution of technology requires that plastics engineers and
polymer scientists continue to stay abreast of these developments by reading
technical journals, attending conferences, and taking courses. Encourage
employees to subscribe to professional and scientific journals, join technical
societies and attend their conferences, as well as to take continuing education
courses at local colleges and universities. The company should reimburse
tuition charges as long as the employee earns a passing grade and should
make reasonable accommodations for class time. While it is always a good
idea to fill in any subject areas not taken during ones previous education,
the main objective should be to keep up with the latest changes in technology.
Much can be said for taking a program that leads to an advanced degree.
This ensures that the course of study is comprehensive and enhances the
performance potential of the individual. A common mistake, however, is not
to recognize the individuals new status once the degree is attained. Employees
who are not promoted or moved into suitable positions soon after earning
advanced degrees are almost certain to leave.
Membership in technical and scientific societies should go beyond just
attending conferences and subscribing to journals. Your employees will benefit
greatly from the opportunity to meet peers and experts. Serving on boards
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and committees can improve their management skills as well. Learned societies
depend on their members participation to function; it is an obligation of a
professional to respond to this need.
The company should also conduct in-house seminars and courses. This
can be a very cost-effective way, for example, to improve planning methodology by using a common approach throughout the company. Also, when
new information technology is adopted, it will be essential to put everyone
through a course on how to utilize it.
Some managers complain that if they pay to train people, then another
company will hire them away. Think about that for a moment do you
really want people who no one else wants? Yes, there is always a risk that
you will train someone and they will repay that investment by leaving. That
risk must be balanced against the superior performance you will get out of
trained people who do stay, or even out of the people who stay only for a
while before they leave. This notion should not require much thought; training
pays for itself many times over, even allowing for some attrition. If your
companys turnover is excessive, training is not causing it. Turnover and
retention is discussed further later in this chapter.
6.3 Compensation and Reviews

While some firms in the industry may still compensate their managerial and
professional employees solely through straight salary, none comes to mind.
Almost every professional above entry level today is compensated through a
combination of salary and incentive. Bonuses should be the principal form
of incentive and should be tied directly to performance, such as achieving
certain individual and group results. Bonuses should account for 10 to 50%
of total compensation, depending on the individuals level in the company.
Stock options or stock appreciation rights as a form of incentive have also
been a heavy favorite, because they have the advantage of minimal impact
on the companys profit-and-loss statement (under current accounting standards) and give employees a genuine financial stake in the companys fortunes.
However, making publicly traded stock a major part of a compensation
package can backfire because the market or even just your stock could
take a nosedive for reasons unrelated to the companys or individuals performance, thereby dampening instead of improving incentive.
Compensation plans should be based on national surveys because you are
competing for professionals throughout the country. Regional cost-of-living
differences sometimes may require adjustments, but these should be handled
outside the basic salary and incentive compensation system. As we shall see
later in this chapter, regional compensation surveys are applicable to nonprofessional employees.
Salaries need to be appropriate for an ascending scale of position responsibilities. The salary structure should be updated at least annually to ensure
that it is at least comparable to the companys main competitors. At the top
end of the scale, make provision for your best performing professionals to
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win additional compensation without the necessity of becoming managers.

Your best R&D scientists and sales people, for example, may only be marginal
managers. Do not penalize them financially for staying in positions where
they can contribute more than as managers.
Salary reviews should be conducted annually and without fail. Companies
that permit reviews to slip beyond the scheduled date are treating their
employees unfairly and will pay a well-deserved price in low performance
and high turnover. If the company is in serious financial trouble, then it may
make sense to announce a moratorium on compensation changes for a
specified period of time (which should not exceed one year). Even then,
promotions should be considered for exception to such moratoriums.
Based on my experience, I recommend using a compensation committee,
which is not a standard practice in many companies. I have found that having
more middle-management participation in setting compensation standards
tends to reduce the us-vs.-them mentality so often found separating upper
management and subordinates on compensation issues. It also helps make
the process of allocating a fixed amount of money less arcane and more
understandable to participating department heads, who then can represent
the compensation process more accurately and fairly to their subordinates
than otherwise may be the case. It is not usually productive to rank individuals
company-wide, but you should insist that department heads do so within their
groups. You simply must know who your best people are, for a great many
reasons. If you wish to make your own combined rankings in private, do so,
but you are inviting trouble if you try to get department heads to agree on
whose top performer is better than anyone elses.
While it is common to do salary reviews on the employees hiring anniversary date, small companies may find it more useful to conduct their salary
reviews all at once at the same time each year, generally the end of the fiscal
year. When the number of reviews exceeds, say, 50 then this may no longer
be practical. What is the benefit of simultaneous reviews? It is much easier to
establish rankings by performance if everyone is reviewed at the same time.
This, in turn, makes it easier and more equitable to allocate salary increases.
One drawback of a common review date is that people will find it tempting
to compare their increases, even if it is forbidden to disclose such information.
When reviews are spread throughout the year, this is less of a factor. In any
event, displeasure over compensation changes is one of the crosses that
management has to bear. No matter how well you have done your job, there
will be complaints, even from those who have been well treated (in your
mind, if not theirs). As John Bickford once told me, Dont ever expect gratitude
for giving someone a raise or a bonus. Enjoy it if you get it, but never expect
it. This is one of those areas where you must satisfy yourself that you have
done the best and fairest job you could under the circumstances and should
not be too concerned about what others think.
Performance reviews form the foundation for compensation decisions. Insist
that performance review systems be objective and reflect the degree of
attainment of objectives that are set annually. Objectives must be quantified
or their accomplishment becomes subjective and therefore a matter of debate.
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Examine the distribution of results to be sure that the system genuinely reflects
accomplishments. If the company is not meeting its objectives while almost
all of its employees are, your system is obviously flawed. Be wary of grade
inflation and insist on rankings (these may be subjective, but often they are
the only way to distinguish among similar performers).
6.4 Promotions
Next to making more money, almost every employee wants to be rewarded
for good performance with a promotion, which is not really an appropriate
reward for strong performance money is. Furthermore, not every highperformance employee is necessarily promotable. The famous Peter Principle
is ignored at great risk: people tend to be promoted to the level of their
incompetence. The cardinal principle that must be at the forefront of your
thinking is that you must promote based on your assessment of the individuals
potential capability to do the new job, and not as a reward for doing the
current job well. This is not really all that difficult to do.
When people are promoted to their level of incompetence, you have a
loselose situation. You do not get the performance you expected and either
those individuals will become miserable and quit, or you will wind up firing
them. Thus, you will end up losing superior performers (at their previous
levels). Generally, only in large companies with very resilient people, is it
possible to transfer or demote those who do not work out back to their
previous level and retain them.
Some firms have a fast-track system for identifying and promoting people
who have been identified early in their careers as having high potential. The
idea is to move them up the ladder as quickly as possible, with typical
assignments lasting only 18 to 24 months (vice president by age 35!). In my
experience, and that of many other senior managers, this is a faulty idea with
high-risk consequences, despite its persistence as a method for grooming
senior managers. Among the drawbacks are the following:
People progress at different rates during their careers. Very, very few
individuals can master every position into which they are put in the short
periods of time that fast-track assignments usually require.
Proper management development must include the idea of seasoning,
experiencing the ups and downs in a position that usually do not conform
to any rigid time frame, especially short ones. In particular, the development
of sufficient emotional maturity to be a successful general manager simply
cannot be commanded to take place in an arbitrary time frame.
Employees are not so stupid that they cannot spot when someone is getting
preferred treatment. This shortchanges both those who are on the fast
track and those who are not, because the suspicion has been planted that
the fast trackers have not earned their promotions on the same basis as
everyone else. This can destroy good working relationships all around.
A common tendency is to hire new graduates of the best-known business
schools and put them on the fast track, despite their lack of any industry
experience. This is the least defensible application of the fast track and
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actually has a less reasonable expectation of success than picking someone

already employed by the company for this designation. If a masters degree
in business administration is deemed a necessary qualification for advancement, then management should provide for promising employees to obtain
their MBA, either via a sabbatical or through part-time study.
One of the main justifications for fast-tracking managers has been that they
bring new thinking to the upper ranks. Perhaps fresh thoughts are in order
at some firms, but the process of bringing them into the company need not
be so flawed. If fresh thinking is so badly needed, then it is better to hire
promising managers from the outside who can bring fresh experience and a
successful record, rather than simply bringing youth.
6.5 Firing and Personnel Layoffs

Employees are generally fired for one of two reasons: (1) for cause because
they have broken government laws or violated company rules or (2) for
unsatisfactory performance. The first reason is atypical and most managers
will not shrink from handling the situation. An employee who has done
something seriously wrong, such as stealing, fighting, damaging property, or
intentionally violating employment or environmental laws, should be suspended from work immediately while you verify the violation. Once the
violation is confirmed, then the individual should be discharged at once and
only allowed on the premises to remove personal possessions in the presence
of security guards. A violation of government law should be reported to the
proper authorities for their action; failure to do so could conceivably expose
the company to obstruction of justice charges.
Unsatisfactory performance should also be treated in a straightforward
manner, although the urgency and concern for security are not necessarily
the same. After completing the second (or third) unsatisfactory performance
review, each of which has specified what the person being evaluated must
do to achieve acceptable performance and the consequence of failing to do
so, then it is time to require a career change, so to speak. Firing someone
for other than cause is usually a very distasteful job for most managers
because it is only human to feel sorry for the individual being terminated.
Nevertheless, it is an extremely important job for several reasons.
If your performance review system is to have any meaning and integrity
at all, then satisfactory reviews must result in retention and successive unsatisfactory reviews must result in dismissal. This is fundamental to personnel
management and to the credibility of your compensation system.
People who cannot or will not contribute at an acceptable level are never
happy in their jobs. This unhappiness infects others and pulls down their
performance as well. It is vital to maintaining the morale of contributing
employees that you dismiss chronically underperforming and disaffected
employees.
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It is ethically wrong to keep someone who cannot or will not execute

work responsibilities on a satisfactory basis. It is a rare situation when such
individuals can be transferred within the company to other positions that they
can perform, because usually too much baggage is carried along to make this
feasible. Assuming the situation is not one of those rare ones, then you must
fire that person, explaining exactly why, and offer a reasonable financial
severance package. You may wish to arrange for an outplacement service,
depending on how likely the individual is to find another position within a
short period of time. While it may sound facile to state that a manager is
actually doing a non-performing employee a favor by forcing the career
change, it is nevertheless true. A surprising number of such employees will
actually express a sense of relief when required to leave their jobs. People
often need the push to move on to another job because they resist change;
sometimes they are in denial in regard to their failure to perform. Handled
properly (e.g., with outplacement counseling), fired employees get a fresh
chance to start over again and regain the self-confidence and self-esteem lost
in their previous positions.
A particularly repellent reason for dismissal of personnel was instituted
during the brief tenure of a CEO of one of the automotive Big Three. It was
similar to that used by Jack Welsh at General Electric, but it was far more
draconian. It consisted of a mandatory distribution of managers into A, B, and
C categories in predetermined percentages during the course of performance
evaluations, with C category personnel to be denied bonuses. If they remained
a C category after a second review, they were terminated. Never mind whether
one or more of the groups of managers had been previously selected with
care to include only top-level performers off with their heads! This procedure earned the company a series of high-profile individual and class action
age, gender, and race discrimination lawsuits, not to mention inflicting a major
hit on morale. The company eventually settled these suits rather than let them
drag out through trials with the attendant further bad publicity. As described
elsewhere, no lasting good comes of setting employees against each other;
the team cooperation required for successful business operation evaporates
in a cloud of distrust and backstabbing. Furthermore, a system that deliberately
stigmatizes an arbitrary percentage of the workforce is contemptible and has
no place in any ethical company.
Layoffs due to restructuring are a different matter than discharging unsatisfactory performers. As a matter of principle, layoffs should never be used
to deal with a temporary contraction in the business cycle. If the company
is in trouble because of overstaffing, then among the first to go should be
the executives whose poor judgment created the situation. Every company
should be run on a sufficiently lean basis to eliminate any fat that could
be cut in down cycles, as mentioned in Chapter 5. Expansions should be
based on improving productivity or outsourcing where feasible, not just
mindlessly adding expendable bodies. Layoffs are a desperate measure and
should be used only as a last-ditch, emergency solution to save the company
and the remaining jobs. Morale will suffer severely from a layoff, and the
reasons must be clearly and convincingly communicated to the surviving staff
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or they will remain demoralized for a longer period than the company can
really afford. Layoffs are not inexpensive, either; severance costs can easily
exceed short-term cost savings. If layoffs cannot be avoided, then management
must ensure that key personnel are not lost in the cutback. Across-the-board
layoffs are a shabby and incompetent way to avoid dealing with the problem
of who is to go do not do it.
Some companies have tried a share the pain approach by applying
compensation cuts to all rather than laying off people. This may make sense
if personnel compensation has been reasonably generous in the past and the
cuts are not drastic. It may also have merit if the companys staff is small and
it is impractical to reduce the number of employees without a serious adverse
impact on operations. The technique is more likely to work if the time interval
that has to be bridged is less than a year, recovery seems highly probable,
and the cuts are restored at the earliest opportunity. Employees who have
been through such situations often have stronger positive feelings about the
company and each other than do those in companies where layoffs were
carried out. Of course, it is essential that everyone share in the cuts, especially
the managers. This approach, however, has significant risk because your better
performers are apt to leave for higher paying jobs if the cuts last for more
than a few months.
An alternative approach in the same vein of share the pain is to ask for
volunteers to be laid off. The layoff period should be short, usually not more
than 30 to 60 days. Volunteers should be guaranteed that they will be brought
back, and that they will receive a significantly better severance package in
the event that permanent layoffs prove necessary later, say, within one year.
During the 1990s, a number of larger companies in the industry managed
downsizing (e.g., layoffs) by offering enhanced early retirement packages
to their older personnel, generally those over 50 years of age. Because anyone
over the age of 45 is protected by federal employment anti-discrimination
laws, this procedure could not be easily limited to weeding out the less
productive employees; everyone in the same category had to have the same
opportunity offered to them. As a result, a number of more desirable employees
were lost along with the less desirable ones. In the opinion of a large number
of outside observers, the mass early retirement of a generation of experienced,
highly competent senior personnel was a bad bargain. The companies may
have been able to reduce their annual compensation costs in the short term,
but they paid a heavy price twice for this action, which more than canceled
out any savings overall. The most obvious price was the cost of the retirement
enhancements, which frequently required the companies to take writedowns
against earnings, typically more than the amount of earnings for one or even
two quarters. The less obvious price came about from operating mistakes that
were likely to have been avoided if the more senior personnel had been on
hand to perform or advise. Some companies realized this and actually rehired
some of the retirees as consultants. Overall, it seems that this approach was
unsound.
Finally, perhaps the most important reason for not using dismissals to deal
with temporary contractions in business is that you will need those trained
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and experienced personnel to handle business when times improve. Remember how expensive and time-consuming it was to find, hire, and train new
people? If you cut staff in a downturn, you will be faced with having to go
through the same cycle of recruiting, hiring, and training all over again, only
this time it will be more difficult to attract top people because you now have
acquired the undesirable reputation of being quick to hire and even quicker
to fire.
6.6 Using Temporary and Other Non-Employee Personnel

By no means does every position in a company need to be filled by a fulltime employee. Many jobs can be performed by a part-time employee,
temporary or contract worker, or consultant. Project work, such as market
research, customer satisfaction surveys, and even some technical service (e.g.,
fielding telephone inquiries) can be successfully accomplished via this route.
Also, it is often wise to use disinterested, outside parties to confirm critical
data generated internally, such as the project work just mentioned. Do not
use such people in jobs where you need to build up a permanent reservoir
of experience within the company.
Some company activities can be compartmented and contracted out, as
one way to deal with the up cycles, yet not creating an oversupply of people
to deal with when the business cycle turns down. Production can be contracted
out; for example, polymer producers can contract out compounding, certain
types of plant maintenance can be contracted out, trucking can be contracted
out instead of or in addition to using the companys own fleet, molding work
or decorating can be farmed out to other molders, or outside payroll services
can be used.
The primary advantage of using temporary or part-time personnel is that
they can be laid off instead of your permanent, full-time employees without
all of the problems cited above. Do not be fooled by the stereotype that
temporary personnel are necessarily less expensive than permanent ones, as
professionals can command fairly high amounts of compensation. Do not
begrudge them this because they are necessarily earmarking some of it for
tiding them over between job assignments as well as providing for their
retirement and health care, benefits that you are not providing directly.
Consultants have acquired an uncertain reputation in some quarters, but this
is an undeserved generalization. While consultants can be both good and bad,
just as in any occupation, the bad ones tend to be weeded out quickly. In
many instances, hiring a qualified consultant for a specific assignment is a much
more sound move than handling the project internally. Consultants often can
bring more expertise to bear on specific problems than exists in-house, which
is particularly helpful with non-recurring issues. It has been my experience,
both as an executive and as a consultant, that individual consultants can usually
be found who have more specialized expertise applicable to the problem at
hand, and cost less, than personnel found in large firms. Consultants should
never be brought in to provide justification for a decision that management has
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already made; this is a misuse. Sometimes, members of the board of directors

can contribute as unpaid consultants based on their own knowledge and
experience unpaid, in the sense that they do not receive additional compensation beyond that which they receive for serving on the board.
Retired personnel are sometimes interested in part-time or contract work.
It makes sense to utilize retirees wherever feasible to do so, as their loyalty,
experience, and past performance are known qualities. It is also a good morale
booster, because it shows that management appreciates these people for their
ability to continue to contribute, albeit on a reduced basis.
6.7 Retention
Lets return to the subject of retention keeping people. Considering how
much time, money, and trouble are required to find, hire, and train good,
qualified people, it is amazing how few managers think regularly about how
to keep those people. While it is true that no one is indispensable, it is foolish
to ignore the need to keep people when it is really not all that difficult to do.
Corporate loyalty in the days of downsizing and restructuring is not what it
once was, but management can and should find ways to repair that damage.
Why do people stay? The reasons are sprinkled throughout the preceding
sections of this chapter, but the following list pulls them together:

People experience career growth and see it continuing.

People like their jobs; they find the work interesting and meaningful.
People like their fellow employees and the team spirit.
People think that management treats them fairly, and they have an opportunity to express their views and influence decisions.
People think their pay and benefits are fair. Believe it or not, this is not
the first consideration, or even the second or third; it comes after others.
Notice the use of the word fair, not higher than anywhere else. Now,
this is certainly not an invitation to underpay people, but it does put things
into perspective.
Although financial rewards are an essential part of recognition of a job well

done, they are never the entire sum of it. Many ways are available to let
everyone know that someone has done a particularly effective job: some extra
time off, an award plaque, a reserved parking place with the persons name
on it, or special mention in front of colleagues during an appropriate meeting,
to name just a few.
6.8 Plant and Laboratory Non-Professional Personnel

To the casual eye, non-professional personnel (e.g., those lacking a bachelors
degree or higher in a hard science or engineering) for manufacturing and the
laboratory are interchangeable with those from any other line of work. This
is a sadly mistaken concept. The potential for expensive spoilage or waste,
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even for hazards to life and the environment, is significantly greater in the
chemicals and plastics industry than in many others. It is essential that those
entrusted with the operation of equipment and the disposal of materials are
knowledgeable, highly responsible, and trustworthy.
Plant and lab people in the chemical and plastics industries must be hired
after a careful screening to ensure that only those who are particularly
conscientious in following established operating procedures are hired. Furthermore, these attitudes must be fostered by training and supervisory reinforcement. Willful disobedience of these procedures or a negligent attitude
cannot be tolerated and appropriate disciplinary procedures must be followed,
including dismissal.
Because plant and lab employees are expected to be a cut above other
non-professionals, they should be paid more than average wage for parallel
jobs in the area. Non-professional personnel tend to be less mobile than
professionals, so compensation must be compared against the area or regional
levels in the industry (effectively there are no national levels per se). You do
not want to lose people for whom you have spent much time and money to
find, hire, and train.
Especially for lab positions, it pays to look for people with at least some
education beyond high school. For example, an associates degree in chemical
technology or a bachelors degree in biology is a good indication that an
individual has the interests and training to be proficient in the lab, even though
if the education does not bear directly on plastics. While a growing number
of institutions are conferring two-year associate degrees in plastics technology,
the number of graduates is still fairly limited; such individuals would be a
find, of course.
6.8.1 Unions
What should you do if a union tries to organize your non-professionals? The
first question to ask is why? Unions almost always enter the picture as the
result of poor employee relations, the handiwork of a poor supervisor or
manger. Because you are presumably paying more than the average wage
although more money may be a union promise, money is seldom the primary
reason for unrest you should take a hard look at your supervisors and
managers. If you can identify problems with the way they are treating the
non-professionals, fix them immediately. This is the kind of problem you
should always be looking for on a routine basis long before a union organizer
shows up. Once a union finds enough support to call for an election, any
steps you take may already be too late.
While it is certainly possible to have a good, constructive relationship with
a union, they almost always add cost to operations through inefficiencies
(work rules), complaints (grievances), and strikes, among other things. It is
quite common for one or more disgruntled employees to bring in union
organizers, participate prominently in the campaign for recognition, and then
resign within a few months after the union has been established.
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Unions found their original justification in the harsh exploitation of labor

by factory owner/managers following the Industrial Revolution in the 18th
century, and came into being in the 19th century under the leadership of
socialist reformers. Unions were able to organize workers to bargain for
improved wages and working conditions that the workers were unable to
attain individually. In the latter half of the 20th century, governments took
over the regulation of working conditions, and the growing need for skilled
and educated workers has bid up wages. Consequently, most industrial unions
today have difficulty justifying the substantial dues they collect from their
members. For this reason, union business agents often will act in a militant
and confrontational manner during contract negotiations with management,
to show that they are standing up for their members. If you find yourself in
such a situation, do not take it personally.
Once a union has been certified by the National Labor Relations Board as
a bargaining agent, it is extraordinarily difficult for it to be decertified, and
you can have no legal role in any such action whatsoever. Fortunately, unions
have fallen into disfavor among manufacturing employees today less than
8% of industrial workers are unionized, and these are mainly artifacts from
the past at large companies. Unions win fewer than 50% of elections, but it
is an expensive, time-consuming, and contentious process, even if you do
win. This is one case where the proverbial ounce of prevention being worth
a pound of cure is, oh, so very true.
Chapter 7
Tools for Management

7.1 Analyzing Your Business
The first step toward gaining control over the direction and success of your
business is to understand what actually constitutes your business through
analyzing its components and how they contribute to or detract from the
whole. These are both qualitative and quantitative analyses. Only then can
one decide intelligently which areas to emphasize and which to de-emphasize
or even to discontinue. Making such decisions imposes opportunity costs, of
course, so that they must be informed and considered judgments, not intuitive
ones; sometimes the correct decisions prove to be counterintuitive. The term
opportunity cost means that pursuing one option will necessarily result in
giving up the opportunity to pursue another, as no one has unlimited resources.
As a consequence of deciding what are your best opportunities, you must
also assign your best people resources to them, not necessarily the greatest
amount of dollars or pieces of equipment. The process described in the
following paragraphs does not constitute a complete approach but rather a
basic test of what the application of your companys resources is producing
and what you might expect from reassigning them. Only after you have
completed such an appraisal (and the competitive analysis described at the
end of this chapter) can you undertake to create business plans.
One school of thought suggests that if you are not number one or two in
a particular line of business (in terms of sales) and have little likelihood of
reaching either of these positions, then you should exit the business. Inherent
in this philosophy is the idea that if your market position is large enough,
high profitability will follow. There is some truth to this, but it is an oversimplification about achieving and increasing profitability. I do not accept this
approach without qualification because I have seen a number of instances
where being a market leader in sales did not lead to being the leader in
profitability. Nevertheless, it is important to know if market share by product
is increasing, holding steady, or declining. The first instance is good, the
second may be acceptable, but the third is a danger signal and requires action.
101
102
Another area of concern is new product introductions. Too often, the

seductive excitement of bringing out a series of new products leads to glossing
over a more important consideration: Will they make money? The single most
important thing to focus on when introducing a new product is to establish
positive cash flow by the end of the first year. One might make a case for an
exception to the one-year rule, but anything over a year is on shaky ground
because the strength of the forecast is greatly reduced. This is a more important
principle than just establishing sales volume. If a new product proves incapable
of profitability despite all of the prior analyses, you need to detect this flaw
early on, before you have pumped in large amounts of cash that are likely
to be unrecoverable, and to cut your losses while you can.
7.1.1 Current Relative Profitability

The quantitative business analysis begins with determining the relative sales
revenues and corresponding profitabilities of the products and/or services that
comprise your business. Peter Drucker, in his Managing for Results, recommends drawing up a table that lists the companys products (or services; for
purposes of this chapter, we will assume that the two are interchangeable) in
terms of the following:
Product sales revenues, net of the cost of raw materials
Percentage those net revenues constitute of total net sales
The cost burden (more on how to determine this in a moment) of the
product
Percentage of this burden of the companys total costs
The net earnings (net sales revenues minus manufacturing and overhead
costs) of the product
The percentage of the product earnings of total company earnings.
The contribution coefficient of the product (a value obtained by dividing
its percentage of net earnings by its net sales revenues)
For this exercise, Drucker defines revenues and costs a little differently
than many accountants do. First, note that he uses a value-added approach;
in other words, sales revenues are stated net of raw material costs. Second,
he allocates manufacturing cost and general overhead (sales, marketing,
research and development whatever is needed to develop, sell, and maintain
a product) on the basis of time or transactions, not just on the basis of physical
volume (tonnage). What might these factors be in the plastics industry? Here
are a few examples:
For a polymer producer, compounder, or processor, manufacturing transaction costs might include the cost of manning, operating, and maintaining
the equipment incidental to producing a single production order. This
would include a production lot made either to fill several accumulated
orders or for building inventory.
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For a distributor, service transaction costs might include the time required
by customer service to process an order, either from stock or specially
ordered from the manufacturer.
For an equipment manufacturer, sales transaction costs might include the
time spent preparing the average number of proposals required to obtain
one order.
This definition of costs is likely to require some estimating on your behalf to

get the correct numbers, but ultimately it will be more meaningful than
conventional cost allocations based purely on volume. For a polymer producer
or compounder, most of the costs associated with processing an order for 1
ton of material are not much different as those for an order of 20 tons. Drucker
considers the cost of processing each of these orders as essentially equal, but
conventional cost accounting is likely to make it appear that handling the
larger physical volume order costs only a fraction of what it costs to handle
the smaller order. When very small orders are involved, setup costs may be
equal to or greater than running costs. Each method makes compromises, but
Druckers approach forces you to examine costs from a fresh viewpoint and
to learn something in the process.
Table 7.1 illustrates this concept using a series of hypothetical product lines
made by an injection molder (I do not mean to imply any subliminal messages
about the names chosen for the product lines; these are purely arbitrary). The
first seven column headings are self-explanatory, and it is instructive to see
the profitabilities of various products relative to their cost burdens and sales
revenues. The contribution coefficient in the eighth column is used to measure
how much additional income a product may generate if its sales volume
increases by replacing the sales volume(s) of another product or products. In
our example, the product category with the highest contribution coefficient
is industrial parts; assuming equal demand for all products, every dollar of
cost and resources invested in increasing the sales of industrial parts will
return more than twice as much profit than a dollar invested in boosting any
of the other product lines. The lesson here is self-evident put your resources
Table 7.1 Current Profitability Analysis

Product
Automotive
Housewares
Electrical/
electronics (E/E)
Industrial
Medical
Specialty packaging
Recreation
Construction
Total
a
Rounding.
Sales
(M $)
% of
Total
Costs
(M $)
% of
Total
Earnings
(M $)
% of
Total
Contribution
Coefficient (%)
40
35
15
35
31
13
38
28
11
36
27
11
3
7
4
26
61
35
0.7
1.7
2.3
8
7
5
1.5
1.5
113.0
7
6
4
2
2
100
5
6.5
6
3
5
102.5
5
6
6
3
5
99a
3
0.5
1
1.5
3.5
11.5
26
4
9
13
30
100
3.3
0.6
1.8
8.7
20.0
104
40000
35000
30000
Sales
25000
20000
15000
10000
5000
0
1
10
Time
Figure 7.1
Classic sales growth S curve.
to work increasing the revenues of the most profitable products. However,

this is not the whole story; even some of the products losing money should
be supported, as we will see later.
7.1.2 Relative Profitability Potential

Next is a qualitative analysis of the products to categorize how they differ
from each other with respect to future profitability. In effect, we are estimating
where each product is located on the classic S-shaped curve of product sales
growth (see Figure 7.1). We cannot really improve on Druckers terminology
as we assign products into the following categories:
Todays Breadwinner A product in this category shows significant
volume but its growth rate is slowing noticeably and perhaps is even flat.
It is near the top of the S curve. Its contribution coefficient is average.
Obviously you need to maintain this product as it is paying a lot of your
bills, but it is now at the stage to be milked (i.e., minimum resources
put in to maintain it). A stable market share for this product is probably
acceptable.
Tomorrows Breadwinner This type of product is already important
but is just beginning to demonstrate its main growth. It is at the first
inflection point of the S curve. Assuming it has become profitable, its
contribution coefficient will normally be high. This product should be
increasing its market share.
Yesterdays Breadwinner This product is marked by high sales volume
but little to no growth and low profit. It is at the end of the S curve. Its
contribution coefficient is low. While it may be defended as the product
that made this company, it requires price cuts to keep it alive. This
product should not just be milked but should be considered for sale or
termination. This products market share may well be in decline.
105
Repair Job This product has substantial volume and good growth
potential (near the bottom to the middle of the S curve) but low profitability
stemming from a single major defect, a problem that is clearly definable
and readily corrected, such as positioning it in another market. Fix it or
sell/terminate it.
Productive Specialties These products have a distinct but limited market
(relatively low growth) but high profitability and require only limited
resources. These are keepers.
Unnecessary Specialties These products have more variations than are
really needed by the customer or which are sufficiently undifferentiated
from others in that they cannot command a price premium. Eliminate these
products either through consolidation into other products or by termination
(by definition, they have essentially no value to someone else).
Developmental Products These products are still in the introductory
stage and appear to have good potential. The technology is cutting edge,
but the economics are as yet unproven. Often such products do not receive
adequate support because to do so would require drawing down support
from one or more of managements favorites (todays or yesterdays breadwinners) or an investment in management ego. Be careful about deciding
to commit so much support that your developmental products will fail the
test mentioned earlier of establishing positive cash flow after not more
than one year.
Failures These should be obvious, but, unlike Repair Jobs, they have
more than one serious defect and may have the dangerous potential to
become an investment in management ego (see the next category). Terminate as soon as possible.
Investments in Management Ego This is a product that should be a
success but is not; however, management is so convinced that it is the
best in its class that it keeps pumping resources into the product. The
poorer it does, the more management gives to it a sort of death spiral
that, in extreme cases, could actually suck an entire company into it. Most
unfortunately, investments in management ego are a common phenomenon. Someone will have to tell management the cold facts. Fix or terminate,
as promptly as possible.
This method of categorizing products and what to do with them is summarized in Table 7.2. Next, we apply them to our hypothetical product line,
as shown in Table 7.3; a qualitative sales growth rate has been assigned to
each product to help with identifying the categories into which the lines fall.
We will find that some judgment calls will have to be made to fit the products
into the slots, just as in real life.
Automotive has the attributes of a Yesterdays Breadwinner and should be
replaced with something else when the current model year purchasing
contract expires.
Housewares, on the other hand, appear to be a Todays Breadwinner and
should be monitored for loss of growth and profitability.
Electrical/electronic (E/E) is a Tomorrows Breadwinner and is likely to
produce even more revenues if supported strongly.
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Table 7.2 Category Checklist

Category
Todays Breadwinner
Tomorrows Breadwinner
Yesterdays Breadwinner
Repair Jobs
Productive Specialties
Unnecessary Specialities
Developmental Products
Failures
Investments in
Management Ego
Sales
Volume
Sales
Growth
Contribution
Coefficient
Action
High
Medium
High
Low
Low
Low
Low
Low
Low
Slowing
Growing
None
Low
Varies
None
Unknown
None
None
Medium
High
Low
Low
High
Low
Unknown
Low
Low
Monitor
Support
Milk or sell
Fix or drop
Milk
Drop
Support
Drop
Drop
The Industrial line has the earmarks of a Productive Specialty. The application may not be price sensitive and a price increase could help profits
without harming sales.
Medical is a Repair Job. The product should be repositioned in a new
market, e.g., Instrumentation, and repriced as a Productive Specialty. If
this fails, drop the product only one fix-it attempt is allowed.
Specialty Packaging is a Developmental Product. Assuming the market
analysis and projections are correct, it will be a winner and requires
continued support. The lead times for approval in this market are longer
than for many others, but this should be offset by greater profitability.
Recreation is a clear Failure. The customer has badly misjudged the market
and admits it cannot support the original projected volume or pricing, but
you cannot reduce costs. Drop this product now!
Construction looks like a monument to Management Ego. After a year and
a series of price cuts, sales are stagnant to faltering, and costs cannot be
reduced any further. Admit that this proprietary molded product is a failure
and drop it before any more money is lost on it. Reassign resources to
E/E and Specialty Packaging.
7.1.3 Assigning Resources

Just what are these resources mentioned above that need to be assigned or
reassigned? First of all, they are your people. You know who your best people
are; that information comes from annual performance reviews and departmental rankings. Top sales and marketing and technical personnel can be
directed to work on Tomorrows Breadwinners and Developmental Products,
while mid- to lower-level personnel can support all the others. Second, of
course, your resources are also financial. Which products should receive
money for new equipment and expansion, working capital, marketing promotion? These are discretionary expenditures and you must apply them where
they will bring the greatest return.
Third, and perhaps somewhat less obvious, resources include your own
time. You need to keep track of how your own time is spent and on what.
107
Table 7.3 Profitability Potential

Product
Sales
Volume
Growth
Contribution
Coefficient
Automotive
High
None
Low
Housewares
High
Growing
Medium
Electrical/
Electronics
(E/E)
Industrial
Medium
Growing
Medium
Low
Low
High
Medical
Specialty
Packaging
Recreation
Construction
Low
Low
Low
Unknown
Low
Unknown
Low
Low
None
None
Low
Low
Total
100
Category
Action
Yesterdays
Breadwinner
Todays
Breadwinner
Tomorrows
Breadwinner
Replace
Productive
Specialty
Repair Job
Developmental
Product
Failure
Investment in
Management
Ego
Milk
Monitor
Support
Fix
Support
Drop
Drop
If you find that you are spending more time on putting out fires than on
smoothing the way for your most successful products, then you may be
misallocating your own most important resource. Much more useful information
than just this topic can be found in Managing for Results, and I recommend
the book for everyone with a serious interest in industrial management.
7.2 Benchmarks for Allocation of Costs

A good way to judge how you are allocating costs is to rate your company
against industry averages. Knowing how your competitors allocate resources
would be even better, but this information is sufficiently sensitive that it is
not often public knowledge. Averages can be misleading because actual
numbers vary according to the type of company and its size, growth rate,
products, and competitive pressures, so it is necessary to recognize that they
are only indicators. Even publicly held companies provide very little specific
information on their plastics operations, so most of the numbers in this section
are in the nature of informed estimates. It would be even more revealing to
show returns on invested capital, but this information is often more closely
guarded than operation numbers. Nevertheless, lets look at a few examples
of what might constitute a typical, if not average, allocation of costs.
7.2.1 Polymer Manufacturing

Stand-alone numbers for polymer manufacturers essentially do not exist, as
almost all of these firms are part of large chemical or petrochemical companies,
108
which do not generally break down the financial performance of individual

lines of business in their annual reports. If one were able to look inside a
large company, however, then a typical integrated polymer manufacturing
division, producing a semi-commodity during an expansion cycle of the
economy, might have an expense breakdown that looks something like this
(with costs expressed as a percent of sales):
Raw materials
Manufacturing
Gross margin
Administration
Research and development (R&D)
Sales and marketing
Net before interest and taxes
34%
35
31
4
5
4
18
The relatively low manufacturing cost is typical when one is making long
production runs of a limited number of products. This cost also includes
depreciation (which may or may not accurately reflect the replacement cost
of the facilities, depending on their age and inflation rates), and how current
the plants level of technology is. Thus, management can be misled into
believing that manufacturing costs are lower than those representative of the
industry if their plant facility is old and nearing full depreciation. This blind
spot, in turn, can lead to a strategy of cutting prices to raise market share.
But, if the result of such a strategy was to lead to net earnings before interest
and taxes (NEBIT) of, say, only 5%, then the company would likely be in
serious trouble, even though it might appear, on paper, to be earning a
respectable return on investment. In actuality, it would risking being unable
to generate enough cash flow to finance growth, plant upgrades, or even
adequate maintenance because it had not adequately addressed replacement
costs. Most polymer producers demand a return on investment of 35 to 40%
to justify new plants. It is unlikely that they actually realize this much on the
average. Research and development costs are a bit higher than in other
segments of the industry because polymer product and process development
require scale-up steps that effectively are unnecessary in the other segments.
7.2.2 Compounder
Compounders usually work on smaller gross margins than polymer manufacturers and therefore must have lower overhead expenses. A specialty compounder might have an expense breakdown such as this:
Raw materials
Manufacturing
Gross margin
Administration
Research and development (R&D)
Sales and marketing
57%
18
25
3
2
5
15
109
These data are also hypothetical, as no pure-play, publicly held specialty

compounding companies exist. Some blurring between marketing and R&D
costs in the area of application development may occur, as R&D mostly consists
of fine-tuning products for custom applications.
No meaningful current information on the typical return on invested capital
is published, but values have been realized in the past 10 years as high as
35%. This depends a great deal on the age and nature of the compounders
equipment. If the equipment is relatively old or purchased used or the
extruders are mostly single-screw, then returns will be quite high. Conversely,
if the equipment is new and mostly twin-screw extruders, then returns will
be lower.
7.2.3 Distributor
Distributors have a wide range of gross margins, depending on how they
are compensated (resale vs. commission), the types of materials they handle,
the industries they serve, and their size. In the example below, it is assumed
that a small distributor buys engineering plastic resins from several manufacturers, stocks them for a predictable (but competitive), non-automotive clientele, and resells.
Raw materials
Warehousing and shipping
Gross margin
Administration
Technical service
Sales and marketing
74%
6
20
3
1
6
10
Distributors specializing in small lots of commodity polymers, or hand-offs

from their suppliers may show lower raw material costs and higher earnings
on sales. With favorable credit lines from their suppliers, distributors that turn
over their inventories in 30 to 60 days effectively do not have to even tie up
cash in their stocks. Distributors can also show very high returns on invested
capital (50% or more) if they do not own warehouses, silos, blending and
packaging lines, trucks, etc. In line with this high return, however, is a high
risk that inventory will not be salable at the price expected when it was
purchased.
While the polymer producers will sometimes provide technical support
with respect to complaints about the performance of their materials, the
distributor almost always has to provide the first aid when it comes to
processing problems. This can often be addressed by using a consultant or
having one of the lab technicians or sales representatives handle troubleshooting as a secondary responsibility.
110
7.2.4 Processor
Processors expense allocations can vary even more widely than those of
distributors, depending on their size and how fully integrated their operations
are. The following example for an injection molder assumes smaller size and
limited integration (e.g., mold maintenance but not mold building, assembly
but not decorating).
Raw materials
Production
Gross margin
Administration
Technical
Sales and marketing
35
47
18
3
2
5
8
This information is based on data collected by the Society of the Plastics

Industry in 19992000 and presented in a paper by J. Mengel at the 2001 SPI
Structural Plastics Conference.
Again, return on investment information is not readily available or comparable, and the capitalization and nature of the business of processors vary
widely (e.g., leased vs. owned equipment, proprietary vs. custom processing).
It would not seem unreasonable to expect to achieve a target of 20 to 25%
return on investment.
7.2.5 Machinery Manufacturer

Machinery manufacturers are subject to the cyclical changes in demand for
their products that are characteristic of the capital goods industry. Unfortunately, little breakdown of financial data is published for these companies, as
their results are often not broken out separately from other businesses within
the conglomerate. The example shown is for an injection molding machine
producer in an average year, neither at the top of the cycle nor at the bottom.
Manufacturing (including raw materials)
Gross margin
Sales, R&D, and administration
80
20
15
5
Again, return on invested capital varies widely, but some published data
indicate that the numbers are somewhat lower than some of those shown
above, in the 10 to 15% range. A problem in estimating the average return
is in deciding what constitutes a representative business cycle, from peak
to trough.
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7.3 Measuring Your Results

7.3.1 Achievements vs. Planned Goals
The most important tool for measuring results is the business plan. The plan
is what the management team has been trying to fulfill all year long. If results
vary by more than 10% from planned goals, examine the basis for setting
those goals. You do not want to use a methodology that consistently sets
unrealistic goals, either high or low, bearing in mind that stretch goals are
targets that go beyond those that would be normally expected. Also, if business
conditions have been unusually good or unusually harsh, you need to consider
this influence on the achievement of results (or lack thereof). Business plans
must have the built-in flexibility to deal with unforeseen economic circumstances. A new team should be getting the hang of setting realistic goals within
two years.
To avoid surprises, ensure that you review achievements vs. plan monthly,
with more in-depth reviews on a quarterly basis. Make adjustments as needed
when they arise, not at the end of the year. Keep extending the plan period
projections as adjustments are made, so that when the next annual plan is
put together, it already has a current baseline.
Of course, making adjustments is not a substitute for finding out why the
business is not hitting its targets and then fixing the problem, if at all possible.
Adjustments come only after you have done all you can and find that the
problem results from conditions that are well beyond your control and that
you have no alternatives to offset the shortfall. Do not let your people off
the hook if they are not achieving milestones and the reason looks to be
more failure to perform than disappearance of business. Obviously, it is better
to be slightly conservative than to be overly optimistic. It is human nature to
favor those who usually report better results than expected than those who
report poorer ones. If you observe someone who always reports results that
are exactly on target, be suspicious because manipulation of data is the only
sure way that this can happen.
7.3.2 Financial Statements and Stock Valuation

The next set of tools are those that will be used by the board of directors,
security analysts, and the investing public in deciding what kind of a job
management is doing. Quarterly and year-end financial statements, as well as
the nigh instantaneous judgment conferred by the stock market on the price
of the stock (for a publicly held company), should be fairly straightforward
in showing how the company is fairing over a period of time, usually year
to year or over a period of three years. Because stock options are a typical
part of executive compensation packages, the price of the companys stock
will be of more than passing interest to management. A depressed stock price
is also an attraction for corporate raiders.
If your companys stock is trading at a multiple of earnings that is average
or better for your industry segment, then all is well. However, if the stock is
112
trading below average, you need to address what is wrong with either the
companys performance or the analysts perceptions and take appropriate
action. In the past decade, the stock market has been a harsh taskmaster,
rewarding and punishing companies with dizzying swiftness, sometimes
unjustly tarring good companies with the same brush as competitors who
have published poor results. While this is a problem that is not completely
in the hands of management, solid, consistent performance over a period of
time will eventually be recognized and rewarded at some level of support for
the stock in the marketplace. Unexpected dips in earnings or periodic writeoffs,
on the other hand, will mark a company as weak or in decline and drop
support levels to a minimum valuation. A continuing low stockprice may offer
an opportunity to take the company private by a management-lead stock
tender offer.
Because most companies also finance their operations through bank loans,
it is important to be aware that bankers also read the stock market reports.
If your companys stock has been swooning, expect a phone call from your
banker asking for an explanation. If your cash flow is running below forecast,
your banker could become concerned about your ability to service your debt.
7.3.3 Customer Satisfaction

While you may achieve planned objectives, your financials look good, and
your companys stock price is soaring, if your customers are not satisfied then
everything will come crashing down sooner than you think. Management
needs to keep track of customer satisfaction, both formally and informally.
How to do this? One way is to pay personal visits to major customers at least
once a year. Talk frankly with them about whether or not your company is
meeting their expectations and, if not, what can be done. This is not really
anything more than what your account manager should be doing throughout
the year, but your presence, as a senior manager, is reassuring to a customer
that you do not take them for granted.
Another, more comprehensive way to assess customer satisfaction, is to
conduct formal benchmarking studies through questionnaires and telephone
interviews. These latter studies are best done through outside, neutral parties
(e.g., consultants or market research firms) who have the necessary experience
in conducting such surveys in a non-intrusive way. Mailing out bland survey
forms to customers is not an acceptable way to learn what your customers
think of you; anyone with experience in this field knows how inadequate
such techniques are. They are a waste of money and time and are more likely
to irritate your customers than to allow them to genuinely communicate their
concerns.
Customer satisfaction measurement is one of the most overlooked yet
important tools that management has. Unless you know what your customers
think of your company, you are effectively navigating by dead reckoning.
Simply being nice to customers is not enough; you must serve their needs
(as well being recognized as doing so), providing value with your products
113
and services that your competitors do not. This is an important technique for
detecting changes coming, so that you are not blindsided.
Customer surveys can also turn up additional important information about
broader needs and problems (market intelligence) that you can use for
directing R&D and strategic marketing projects. After all, your customers are
experts on their business. You would be hard put to find a better, more
credible source of information about the trends in their market.
7.3.4 Competitive Rankings and Analyses

Every company should know how they compare with their competitors. After
all, these are the people that are trying to take away the business you currently
enjoy in the marketplace, and this is exactly what they will do if you misstep
or lose your direction. Lets be clear that this is not advocating industrial
espionage, which, by definition, is unethical if not illegal. Business intelligence,
on the other hand, comes from many open sources of information, which are
not difficult to find if you know where to look. For example, a good deal of
competitive information is freely available from competitors themselves in the
form of product brochures, annual reports, press releases, scientific papers,
trade show exhibits, and websites. Very often, news releases on new plants
or expansions list the annual production capacity. For some reason, a number
of companies seem compelled to disclose more information about themselves
on their websites than in any of their other publications. Also, competitors
customers and vendors are often willing to share information, and they are
usually the most reliable sources of information when it comes to estimating
market share. The difficulty comes about more in the analysis and interpretation of this substantial amount of information than in obtaining it. For this
reason, I strongly recommend using an experienced, independent consultant
to do competitive analyses, if they are anything more than financial comparisons (and they should be). The term independent is meant to exclude inhouse consultants because they cannot avoid some degree of bias in analyzing
and interpreting the data.
A consultant will first seek your agreement on defining just who really is
your competition, perhaps more broadly than had previously occurred to you.
If you are a nylon manufacturer, you may think of other nylon producers,
possibly even producers of other engineering polymers, but would you not
consider zinc, aluminum, and magnesium producers to be competitors too?
If you are a compounder, are your friendly glass fiber suppliers not also
competitors if they are offering dry blends? If you are a molder or an extruder,
are metal diecasters and metal extrusion companies not competitors, as well
as other molders or extruders? If you work with thermoplastics, how about
those people who work with thermosets? It is important to look at your
competitive environment on a broad basis, or you may be hit by one of those
unforeseen changes mentioned in Chapter 1. You need some understanding
of the strategy of these competitors so that you can both protect yourself and
exploit their weaknesses. It is instructive to see how your indirect competitors
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view their business, as well. Several times in the past, people in the plastics
industry have been caught by surprise when trade associations representing
glass, paper, or metal industries initiated a public relations campaign against
plastics. It should come as no surprise, however; after all, just who is it that
loses business when plastics displace other products in packaging, construction, and other end uses? Even construction unions have been an enemy of
plastics when they have believed that converting from traditional materials to
plastics may threaten their jobs and income.
Next, your consultant will want your agreement on how the study will be
structured. At the very least, you will want to know the size, growth trends,
organization, market share (both overall and by individual markets), innovation
record, and production and technical capacities of your principal competitors.
Some of the information you want may simply not be available, such as
production costs, but, as mentioned earlier, a great deal of information is
available from essentially public sources. Talking to knowledgeable sources
in the marketplace takes more time and costs more than just gleaning information from published data, but usually fills in missing details and (perhaps
even more importantly) validates the published data. This is important because
more than one company has thought that it can scare off potential competitors
by inventing creative ways to announce production capacity increases that
turn out to be only on paper. Your competitors management may also reveal
their strategies in public forums, such as trade association meetings and
building dedication ceremonies, not to mention documents filed with the
Securities and Exchange Commission or other public agencies. Your consultant
will locate all of this information, analyze and evaluate it, and then present
it to you in a useful, intelligible form.
Chapter 8
The Role of Acquisitions,

Joint Ventures, and
Divestitures
While every business tries to generate new technology, sales, and asset growth
internally, there are limits as to how quickly or broadly this can be done.
Acquisitions and joint ventures can achieve these goals more rapidly; however,
it is important to be aware that acquisitions, in particular, invariably bring
management problems with them. These problems are often serious; it has
been said that over half of all acquisitions result in failure, in terms of meeting
the original expectations.
Joint ventures are often a good way to become acquainted with an
unfamiliar business before diving in all the way and making an acquisition.
One can acquire the other half of the joint venture later if it is succeeding,
or divest it if it is not. Divestitures are usually seen as an opportunity to
redeploy financial assets by selling off business units that no longer fit with
company objectives, as well as acquisitions that fail to work out. Sometimes,
divestitures are needed just to raise cash if the company is running heavy
losses and cannot borrow enough to cover them.
Acquisitions have played a prominent role in the evolution of the plastics
industry. Many of these have been the result of the industrys small business
pioneers being consolidated as the founding entrepreneurs died or wished to
retire without having a successor. Also, some medium-sized firms have found
that they require certain economies of scale in order to survive the competition
from larger firms attracted to the growth and earnings potential of the industry.
Particularly for polymer manufacturers and processing equipment makers,
an important reason for acquiring competitors or joint venturing is to reduce
unit costs by spreading research and development (R&D), sales and marketing,
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manufacturing, and administration over a larger revenue base. In times of

slow or zero sales growth, and in the face of declining prices, consolidation
is often the only way to improve profitability. In bad times, it may be the
only way to survive at all.
A significant number of companies available for acquisition are in financial
trouble. Such firms may indeed offer a rare opportunity to acquire a fast and
easy fix at low cost, or they may turn into quicksand and absorb far more
personnel, time, and resources than originally contemplated to effect a turnaround. A bad acquisition has destroyed more than one company. These and
other considerations are explored in the following sections, which are written
primarily from the viewpoint of a would-be acquirer. The final section looks
at matters briefly from the prospective of someone being acquired.
8.1 Access to Markets

Probably the most common reason for acquiring another company or entering
into a joint venture is to increase sales by broadening the existing market and
customer base. While antitrust laws limit how far a company can go via this
route, these restrictions usually only affect the activities of larger companies
if the acquisition has the effect of reducing competition. Although the rules
are somewhat elastic, one can usually count on attracting the interest of
government antitrust attorneys if the combined companies will have an aggregate share of more than 10% in a readily definable and economically important
market. Of course, everything depends on how broadly the specific market
is defined. Most plastics industry acquisitions can demonstrate sufficient competition from other materials that they can easily pass this test. For example,
nylon 6 competes successfully with nylon 66 for a great many applications,
so a merger of two nylon 6 producers should be able to define their resulting
position in a marketplace of both nylon 6 and 66, rather than just nylon 6 alone.
Acquisitions that bring in one or more new, but related, product lines or
open up a new market for an existing product line can make a great deal of
sense. Economies of scale are achieved very quickly this way. For example,
a specialized polycarbonate compounder that acquires a specialized nylon
compounder who sells to the same customer base may find that costs are
reduced by using combined plant facilities, a combined (possibly smaller
overall) sales force, and, of course, a combined (and definitely smaller overall!)
administration. A molder might acquire an extruder that is selling products to
both existing mutual customers and to ones that the molder does not currently
serve. This move would expand the molders equipment technology base and
both solidify and expand its customer base.
A favorite route to overseas markets is to acquire a local company; this is
also a high-risk strategy and is often more prudently pursued via a joint
venture. The local company provides customer contacts, knowledge of local
conditions, and language abilities. The acquirer or joint venture partner provides technology and application knowledge and, often, a source of supply.
Ideally, both should contribute capital and management personnel. Overseas
The Role of Acquisitions, Joint Ventures, and Divestitures
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acquisitions require a great deal of patience and planning. Language barriers,

differing business cultures and legal systems, and more stringent and pervasive
government regulation are among the differences that one encounters compared to acquisitions in ones own country.
8.2 Access to Technology

Another important and sound reason for acquisitions or joint ventures is to
gain access to technology, particularly if it is patented or not available under
a reasonable license or if the target company is on the cutting edge of
developing new technology. Sometimes this is a question of reaching sufficient
critical mass of R&D assets and personnel to develop certain types of new
technology. Other times this is a way to avoid committing internally to a line
of high-risk R&D in order to discover certain types of new technology, although
acquisitions are hardly risk free.
Because few small companies in the plastics industry have important
technology assets, these types of acquisitions, mergers, or joint ventures usually
involve large firms and, therefore, large amounts of money. This in turn tends
to tilt the table in favor of joint ventures as the most cost-effective way to
obtain access to valuable technology.
Access to technology does not have to come via acquisition or joint venture,
however. A properly constructed licensing agreement can do much the same
with much less risk and capital outlay, assuming that the technology owner
is willing to grant a license. Some licenses involve grant back, whereby
improvements are made available to the licenser, usually for an offsetting
royalty. Cross-licensing can be another possibility where each party has patents
or know-how that the other needs and are about of equal value to each party.
8.3 Manufacturing Capacity

Companies aspiring to increase and diversify their manufacturing base on a
national or international basis sometimes find that acquisition or joint venture
is the quickest and least costly way to do so. Companies that are ISO 9000
certified are desirable targets, because integrating them into the parent company will be simpler than bringing in companies that have less well-defined
manufacturing practices. In a manufacturing acquisition, the due-diligence
phase should include a study to assure that the targets production sites that
duplicate the acquirers existing ones are serving customers in geographic
areas that cannot be reached economically otherwise, or that the new sites
are so much more efficient that closing some of your old ones is part of the
value to be obtained through the acquisition.
The most important asset is not the equipment, of course, but the personnel
and their expertise and proficiency. Machinery can be purchased and installed
far more easily than people can be hired, trained, and become members of
an effective team. If the combined operation does not show projected savings
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on overhead per unit of production capacity, then other, more highly compelling reasons whould have to justify going ahead with the acquisition.
8.4 Vertical Sector Acquisition

For the most part, acquisitions and joint ventures have tended to remain within
the respective sectors of the industry described in Chapter 2. In other words,
most acquisitions in the industry are horizontal in that they combine similar
companies. Nevertheless, vertical acquisitions are occasionally observed.
In the past several years, polymer manufacturers have begun to show some
interest in entering the compounding sector. General Electric Plastics formed
its own custom compounding unit in the United States, acquired an Italian
nylon compounder in the late 1990s, and acquired LNP Engineering Plastics
in 2002. Dow Corning has recently acquired Multibase, a French compounder,
also with a plant in the United States. These are interesting developments but
it is too early to say whether or not this is a trend. After all, ICI acquired LNP
at one time but used it more as a marketing organization to sell its polymers
than as a specialty compound producer. Much will depend on how much
independence General Electric and Dow Corning afford their compounding
units. If these polymer manufacturers try to run these units as part of their
regular business, this experiment will fail and will be recorded as another
example of the inability of a large company culture to accept the fact that
small company cultures are more successful in specialty businesses.
So far, no great interest on the part of polymer companies to acquire
distributors is evident. The two exceptions, BASFs Ultra Plastics and General
Electric Plastics Polymerland, are discussed in Chapter 9. While both of these
acquisitions have been clearly successful, no one else has apparently seen fit
to emulate them. To a very limited extent, some compounders distribute base
polymers, but this is an internal business diversification and not the result of
an acquisition. A few distributors have become compounders, but this, too,
has not been the result of acquisition. In the past, processors have shown
little interest in vertical integration backward into compounding, except for
two groups: those specializing in fluoropolymers and automotive captive
molders.
Occasionally, acquisitions are advisable to secure a critical raw material
supply. Victrex, a polymer manufacturer discussed in Chapter 9, became aware
in 2001 that its future expansion plans might be limited by the availability of
a critical monomer, so it acquired LaPorte, a small chemical company that
makes the monomer.
8.5 Successfully Integrating Acquisitions

into Existing Operations
Unless the acquired company is intended to be a stand-alone, independent
operation, integrating the acquisition quickly into the acquiring company is
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absolutely critical to success. Plans have to be in place before the acquisition

is made for quick integration to show any real results. Why integrate quickly?
Among the reasons are the following:
Motivating and retaining key personnel are vital to the success of the
acquisition. If you do not give these people good reason to believe that
they will be valued and will find the same (if not more) satisfaction in
their jobs, then they are likely to leave or move in circles if their direction
or sense of importance has been lost in the course of completing the
acquisition. People who leave will often join competitors or even start
their own competing businesses. This will leave you worse off than if you
had never made the acquisition.
Identifying and replacing problem personnel is another must. Doing so
may take more time than motivating and retaining key personnel, but it
is essential, particularly when acquiring a failing company. If this matter
is not addressed immediately, the acquisition will continue to bleed but
now it is your money that is being lost. This may also entail pruning some
weak product lines.
Acquisitions are never inexpensive. You need to make these assets start
earning a return for you as quickly as possible. Transition time is dead time.
The planning process may reveal that the acquisition is not a proper one,
that it really does not fit after all. Better to learn this and cancel the
acquisition, rather than find out after it is too late. The cost of planning
now will be much less than having to divest later.
It takes time and planning to integrate enterprise resource planning (ERP)
and other information technology (IT) systems. This simply cannot be done
effectively overnight. The longer the acquired company is out of your IT
loop, the less effective will be your knowledge and management of the
new company.
8.6 When and How Not to Acquire

Knowing when not to undertake an acquisition is even more important than
knowing when an acquisition is needed. Too many acquisitions are made for
the wrong reasons, wasting huge amounts of money, time, and management
focus that should have been spent on developing the business internally or
finding another, more beneficial acquisition. Here are some of the more
common wrong reasons for making an acquisition:
Eliminate a competitor. This is often illegal and is likely to involve the
company in protracted litigation with federal or state governments. Litigation,
especially antitrust litigation, is an enormous drain on management time
and company funds that would have been better spent on improving the
company internally. Moves such as this can also give a company a predatory
reputation, which is not helpful in doing business. Furthermore, the existence of at least one competitor is actually a positive benefit; many potential
users of your product are likely to be unwilling to expose themselves to
the potential problems of depending on a single supply source.
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Show the industry how wealthy and powerful your company is. This calls
into question why more attractive internal opportunities for more profitable
growth have not been generated. C. Northcote Parkinson, in Parkinsons
Law, warns us that building corporate monuments is a sign of decline,
not power. This is also a sign that the board of directors is not independent,
but subservient to a CEO who has an oversized ego.
Diversify. This is quite possibly one of the most common and also the
weakest of reasons for acquisition or merger. Only rarely does management
know enough about unrelated businesses that it can effectively oversee
the operations of an acquisition that has nothing in common with the main
line of business. Learning how a new business operates after the acquisition
is much too late. And, there is always the temptation for the acquirer to
dictate how the business should be run, usually to the detriment of the
acquired company. Furthermore, the stock market tends to punish the
valuations of conglomerates that are not exceptionally well managed. Over
the past half-century, virtually every company that has acquired other
businesses in order to diversify has wound up divesting them later or been
acquired itself and broken up. Still, this dismal track record does not seem
to keep managers from acquiring unrelated businesses as a way to smooth
the economic cycle or some other equally attractive delusion.
Acquire a bargain. The urge to buy a troubled company on the cheap
with the premise that it can be turned around quickly is often a trap
waiting for the unwary and inexperienced. Usually, it is very difficult to
know from the outside what the real cause of trouble is or even if it can
be fixed at all. The only certain thing is that troubled companies invariably
soak up a great deal of management time that would otherwise go into
improving your existing business. Obviously, exceptions to this rule can
be found. If you know the company well and have a firm and appropriate
idea as to how to fix it, you stand a good chance of acquiring a winner,
but without this inside knowledge, a buyer is normally headed for trouble.
Almost as bad as making an acquisition for the wrong reasons is going

about it the wrong way. This is a more subtle way to make an acquisition
fail, but it seems to have an amazingly large number of eager practitioners.
Because of the almost infinite variations on this theme, lets just highlight a
few of the real-life ones in the industry during the past 10 years. The names
are not revealed to protect the guilty.
Changing the business focus from the one that made the acquired company
successful to something new is a favorite blunder by far. It is not unreasonable
to call it a blunder because it virtually never succeeds. One cannot help but
wonder why the acquisition was made in the first place. One of the more
egregious examples is the case of a commodity producer that acquired an
engineering plastics compounder for the purpose of making polyolefin compounds. The acquirer eventually divested the company when it came to realize
that the equipment was unsuitable for the type of production it had envisaged.
In the meantime, it had de-emphasized the engineering plastics business and
lost many of the companys customers for these products. The new acquirer
of the company was already in the engineering plastics compounding business
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and simply added this capacity and the remaining customers to its own a
far sounder acquisition.
A variation of this blunder is to have the new acquisition report to a
particularly ambitious and/or egotistical manager. Such a manager will never
be able to resist the temptation to put his or her imprint on the new company,
invariably changing the focus away from what made it successful to begin
with. This may not be a bad plan if the acquired company requires a rescue
from the verge of bankruptcy, but it is almost always a guaranteed plan for
failure if the firm was a successful one. This scenario is particularly applicable
if the acquiring company has a culture that demands that its managers show
instant results when they take on new responsibilities.
Replacing key managers in the acquired company with ones from the
acquiring company is another blunder. Unless the acquired company was a
business failure, this makes no sense at all. Human capital is almost always
the most important asset in any acquisition. If management does not respect
the staff of the acquired company, then why was it acquired? And, as noted
earlier, those key managers have a way of winding up in competition with
the acquired company, and now with a grudge, as well not a pretty picture
to contemplate and one that will hurt the acquisition in several ways. Noncompete agreements are not always upheld by the courts, so no foolproof
way exists to keep key managers who have been dismissed from coming back
to haunt you in the marketplace. If they are good, they will know where to
hit you where it really hurts.
Yet another mistake is to merge several acquisitions together by creating a
brand-new top-management group while simultaneously reshuffling (or dismissing) the top management of the acquired companies. The new entity is
expected not only to maintain sales and profitability of the acquired companies,
but also to achieve higher revenue and earnings growth (synergy). This
procedure does not appear to have any theory underlying it, but the lack of
a reasonable rationale does not seem to keep people from trying it. A large
plastics conglomerate tried this by buying up regional distributors and trying
to form one large national distributor from the group, dismissing or losing a
number of key personnel in the process. The product lines of the regional
distributors did not complement each other and in some cases actually competed. This meant trying to persuade suppliers to agree to convert regional
representations into national ones, a process that eventually had some success
but only after a period of years. It also meant dropping or divesting some
small but profitable representations that could not be converted. The net result
was that the resulting mashed-together super distributor took years to equal
the sum of the originally acquired parts. It is quite likely that the same net
result could have been obtained at less cost and more quickly by acquiring
one strong regional distributor and putting resources into internal growth and
expansion.
In another case, involving a parallel strategy, a conglomerate company
decided to combine a number of acquired compounders with dissimilar
product lines. A number of senior managers were dismissed and the rest
moved from their original positions (and competencies) to new positions.
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These repotted managers knew relatively little of the businesses or functions

they now found themselves in, and (surprise!) the newly combined business
suffered greatly. The net result was a disastrous financial failure of such
proportions that the parent company eventually found it necessary to be
acquired by another firm. The new owner had little choice but to dismantle
most of acquired structure, largely by closing plants, because much of the
original business had been lost by then. The saddest part of this story is that
many people in previously successful companies lost their jobs through no
fault of their own, while the incompetent executives who caused the debacle
either bailed out before the results of their handiwork came to light or walked
away with golden handshakes. The better way to handle such a consolidation
process is to choose the largest and most successful acquisition as the flagship
of the group and to have the other companies report to it. In time, the sales
forces can be merged, as well as other duplicate groups. The process will
take longer but will have a far greater chance of success.
A particularly subtle way to cause an acquisition failure is to place the
new company under a manager whose compensation depends on achieving
certain goals that are not necessarily compatible with the business form of
the acquired company. As an example, lets say that an acquired distributor
will report to a manager whose compensation is partly dependent on maintaining low working capital in those business units for whom he or she is
responsible. Lets also assume that the distributors business depends on
maintaining high stock levels for just-in-time deliveries to certain key customers. Now we have a situation with conflicting interests the reporting manager
will likely want to see those high stock levels cut back but doing so will have
the distributor risk running out of stock at critical moments. The way around
this, of course, is to change the managers compensation goals, but all too
often this comes up only after the problem occurs.
8.7 Acquisitions vs. Joint Ventures

As noted earlier, a joint venture is sometimes a superior way to achieve certain
ends compared to a complete acquisition. If it turns out that the joint venture
was a mistake, it is often much easier and less costly to terminate it than it
is to sell or liquidate an acquisition. Contrarily, a successful joint venture may
offer an easier and less costly route to acquisition by buying out the partners
interest, compared to finding a similar but independent business to acquire.
Of course, a key and normal element of any joint venture agreement
is an agreed-upon procedure for termination or formula for buying out the
other partner. Very often, the least complicated procedure is to require that
whatever offer is made by one partner, the other has the option of either
buying from or selling to the first partner at that same price.
Joint ventures are not without their disadvantages. Partnerships between
widely dissimilar companies, in terms of size or interest, are seldom a wise
choice. Relative dissimilar financial strengths and diverse interests tend to drive
the partners apart rather than keep them together. The relationship between
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a mouse and a hippopotamus is uneasy at best. The simplest ones are normally
the most successful for example, a manufacturing joint venture where the
partners split the costs and the output and market the product independently
of each other. Research and development joint ventures are also relatively
simple but require a firm agreement on the partners goals and their contributions of personnel and funding, as well as the intellectual property rights
that will stem from any results. The most complicated, and potentially contentious, joint ventures are those where one of the partners supplies raw
materials or services to the collaboration on an ongoing basis; agreement on
transfer pricing is usually difficult and subject to frequent demands for renegotiation. The success of merging two similar businesses together just to
achieve greater size is likely to depend on the ability of the two parents to
reach agreement in advance on which one will be the managing partner.
8.8 Divestitures
Divestitures, the opposite of acquisitions, are thought to be necessary when
an acquisition turns out to be worthless or unsuitable for the companys use.
For example, a polymer producer acquired a sheet manufacturer located in a
large city. City building inspectors showed up shortly after the closing and
threatened to cite the company for numerous building and fire code violations
unless they were offered gifts, a practice that had evidently been going on
for years but had not been detected during the due-diligence review. The
union business agent also appeared and it became immediately apparent that
he was also used to receiving gifts in exchange for steering labor contract
negotiations in the companys favor. The acquirer, of course, refused to
continue these practices but was forced to shut down the plant. The acquisition
agreement was then deemed to have been fraudulent, but by this time, the
former owners had disappeared and the acquired company was eventually
liquidated. The way to avoid such a disaster is to use an outside consulting
firm to be responsible for the due-diligence phase to verify that the business
is indeed what the owners represent it to be.
The situation is less disastrous for the case of a joint venture that has not
achieved the goals set for it by one of the partners. That partner may then
wish to divest its interests, most likely selling to the other partner.
Divestiture might be necessary when a relatively independent part of the
company or its business has proven unable to show the required growth or
profitability to keep up with the other parts. Mature product lines can fall into
this category, particularly if they are relatively independent of other lines and
are unable to support the companys overhead costs. Other producers of the
same product may have an interest in acquiring such a business, or sometimes
the managers of this business segment may wish to buy it and run it as an
independent company. This is a good way to free up capital for investment
in more rewarding operations.
A capital-intensive part of the company or its business could have unmet
capital needs that cannot be handled internally. This assumes that the business
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line is not a new, growing, and profitable one that might represent the future;
otherwise, it would be better to divest lower growth lines in order to finance
the more capital-intensive one. A strain on capital is also a situation that might
well benefit from joint venturing rather than outright divestiture.
Management could decide that the company must change its focus, and a
part of the company no longer fits with the new direction or other parts of
the business require the investment of cash that cannot be easily raised
otherwise. If the part of the company to be divested is big enough, it may
be spun off to the stockholders rather than sold. While this can be a legitimate
basis for a divestiture, many cases of such a splitting off have been less than
successful for both the parent and the spin-off, so that all the ramifications
must be considered very carefully before making such a move. As mentioned
elsewhere, several major chemical companies in the past decade decided they
would focus on life sciences and sold or spun off their basic chemical
operations. Neither parent nor stepchild company fared well afterward; it
appears that they may well have been better off to have kept the chemical
businesses and spun off their life science operations instead. Profitable, growing businesses are not easy to find or grow internally. If they are contributing
to the overall company and are not demanding otherwise scarce high-level
resources, why divest? They should be retained to provide cash flow for core
and new businesses.
8.9 The Challenges of Being Acquired

Being the acquiree rather than the acquirer offers special challenges. The
two basic situations to consider are voluntary and involuntary. If you are
seeking to be acquired, perhaps you are the owner of a small business and
want to retire or pursue another career, or at least reduce your work hours
and financial risk. Or, if you were not informed or consulted before someone
acquired your company, you may need some guidelines about whether to
stay or not.
8.9.1 Selling Your Company

Selling your company, especially if you are the founder, almost invariably
involves a lot of emotion. Emotion has a way of getting in the way of making
decisions based on logic. You are likely to be better off if you employ a
consultant to help you, someone you can trust to point out where your
interests are best served without the coloration of sentiments. You should
contract with the consultant to pay for their time, not the value of the
transaction. This way, the consultant will not have a conflict of interest if you
choose to subordinate financial considerations to other matters that are important to you, such as the continued employment of your staff or maintaining
the facility in the existing community.
Although the dollar values are fairly small, the number of acquisition
transactions involving plastic processors is much greater than in any other
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sector of our industry. This is because there are so many small processors,
almost invariably owned by their entrepreneurial founders. Because the financial barriers to entry in processing are very low (equipment and a building
can be leased rather than purchased), just about anyone can go into business
as a processor; therefore, the primary assets of a processor are the firms
customers and the expertise of the employees. You will need to assure any
potential buyer that these assets are readily transferable if the firm is sold. Do
not overlook the possibility that those employees may be just the ones to buy
your business, possibly through an employee stock purchase program. You
will need expert financial and legal assistance to do this, of course.
Selling your company will be very time consuming. Make sure that you
have delegated as much of your duties as possible (only to capable hands,
of course) so that you will have this time. If you intend to retire, ensure that
you have an effective successor in place who is ready to take over after you
leave. Few potential buyers will have any interest in taking over a company
where they have to provide managerial succession.
If you intend to stay on, you must understand that you will no longer be
the boss. The new owner will have the final say on how the business is run.
Under most circumstances, it makes more sense for a company founder to
plan on leaving after not more than 3 years, during which time you will
facilitate the turnover of the business, particularly in regard to holding the
hands of customers. Even this brief time may be too much if you find you
are having trouble letting go. Your contract should provide for early release
under such circumstances; you will undoubtedly be bound by a non-compete
agreement, in any event.
8.9.2 Surprise! Your Company Has Been Sold

Assume that you are the senior executive of a company and the owners have
just informed you that the business will be sold. If the owners have invited
you to participate in finding a buyer, you should seize this opportunity and
make the most of it. You are the most likely person to make a compelling
case for someone to acquire your company. By doing so, you will demonstrate
that you are also the best person to run it, even under new ownership. You
should also have a better idea than anyone else which other firms would
provide a good fit with yours. You might even be able to put together a
management buyout of the business, if you have an entrepreneurial bent.
On the other hand, if the owners have not made you a part of this process,
things may yet work out to your advantage, but you may wish to update your
rsum. If the company has been acquired by someone who wants to diversify
their holdings, all well and good you may be in the drivers seat. On the
other hand, if the company has not been doing well, you may well be held
responsible for this, even if no other manager would have been able to do
better. Worse, if the industry is in consolidation and this has overtaken your
firm, the probability is strong that you will be restructured out of your job.
In these cases, the responsible thing to do is to cooperate in the process to
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the extent you are permitted to do so, but you may wish to consider asking
for a severance package in the event none currently exists (assuming you will
not hasten your departure by being so bold).
If you are not the senior executive, but someone a little lower down on
the ladder, you have some thinking to do. Why was the company sold? If the
reason was for consolidation, is your department one that could be easily
replaced by an outside group? If you are in sales or manufacturing, you are
likely to be asked to stay. Any other function is likely to experience restructuring and your job may or may not survive. In general, the higher your
compensation, the more closely you will be looked at to determine whether
or not you will be retained. If you do survive the cut, take a look at the new
owners operations to see if it might offer you a chance to move up. Very
often, those who are deemed worthy to remain in their positions are also
those deemed to be highly promotable.
Chapter 9
Case Studies
To help reduce some of the preceding ideas to practice, this chapter will
explore how a few selected companies in the industry have been managed
successfully. The selection of these firms was also based on my knowledge
of the companies, the accessibility of their senior management, and their
willingness to talk about their guiding principles. No claim is made that
inclusion in this chapter constitutes an implied best of category. Furthermore,
these profiles in some respects are a photograph at a moment in time and
may not fairly represent the condition of the company at the time that you,
the reader, take up this book. Not all of my comments or observations are
authorized by the companies analyzed, so reasonable people may differ with
some of my observations and conclusions.
9.1 Polymer Manufacturing

The principal American polymer manufacturers are fairly well known. In
engineering polymers, General Electric Plastics has the reputation of being
especially strong in marketing and DuPont in research and development
(R&D); Amoco and Phillips were at one time the polyolefin leaders but have
since merged their businesses with others. Overseas manufacturers have
learned to work in much smaller national markets while seeking to build their
businesses in the surrounding regions. We will examine two such firms that
are leaders in their regions and are now becoming truly global players. The
third example is a genuine rarity among polymer producers a one-product
company.
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128
9.1.1 BASF: Using Breadth of Product Line and Manufacturing

Integration
BASF undoubtedly has the broadest, most complete line of polymers in the
world, although it is not the largest producer of any one of them. BASF makes
commodity, semi-commodity, and high-performance polymers, a relatively
unusual combination. It is also arguably the most fully integrated polymer
manufacturer, making all of its own monomers via integrated processes back
to basic chemical and petrochemical feedstocks. In fact, its slogan is the
German word, Verbund, meaning integration. BASF has five large, integrated
manufacturing sites, three in Europe (Ludwigshafen, Antwerp, and Schwarzheide) and two in the United States (Geismar and Freeport), but it is continuing
to add to other sites with the goal of eventually bringing their integration
levels up to those of the five largest.
BASF has grown from being one of Germanys top three chemical companies into one of the largest in the world, a global player. While it has not
been immune to the industrys economic cycles, its profitability has been
consistently above average. Jrgen Strube, BASFs chairman for the past two
decades, broke tradition when he became the first non-scientist/engineer to
reach the top job. An attorney by training, he has become a true businessman
and must be credited with much of BASFs success, despite the relative lack
of authority wielded by German executive board chairmen (as noted in
Chapter 4, they are not CEOs). He has had to deal with major transitions
within BASF as the company has gone from being a regional player to a
global player, the commoditization of its polyolefin products, and the withdrawal from downstream processing, to name just a few of the challenges.
BASF employs a relatively complex organizational matrix arrangement.
None of the nine executive directors has complete authority for the operating
its polymer business. Geographic area management is divided among four
directors, and the major European plant sites are the responsibility of two
more. These organizations provide administration and manufacturing for polymers, as well as local sales, marketing, and technical service. One director
does hold overall responsibility for the business direction of polystyrenes,
performance (engineering) polymers, polyurethanes, and polymer research;
the heads of the product departments direct global marketing. Figure 9.1 shows
an abbreviated view of this organizational structure.
9.1.1.1 History of BASF

BASF is one of the worlds older chemical companies, dating back to 1865.
It has a proud history of discoveries; in the polymer area, its chemists are
credited with the invention of nylon 6, expanded polystyrene, and acrylonitrilestyrene-acrylate (ASA), and its engineers with the gas-phase process for
polypropylene, among other things. BASF has never had to face another
German polymer producer with a directly competing product line. Bayer
competes in nylon 6 and polyurethanes, and Hoechst did at one time in
polyolefins, but that is about it. BASFs Ludwigshafen chemicals complex, the
largest single such site in the world, was destroyed during World War II. BASF
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Case Studies
Executive Director
Polystyrenes, Polyurethanes,
Performance Polymers, Polymer R&D
Executive Director
North America (NAFTA)
Executive Director
Corp. Engineering
Southeast Asia, East Asia
Executive Director
Eastern Europe, Africa,
West Asia
Executive Director
Schwartzheide and Antwerp
Plant Sites
Executive Director
European Community
Executive Director
Ludwigshafen
Plant Site
Figure 9.1
Polymers.
BASF AG Responsibilities of Executive Directors for
rebuilt the site, became a major polymer producer in Germany, and next built
polymer plants in Belgium and Spain. In the 1980s, BASF established a
significant polymer presence in North America, then began setting up an
important and growing polymer position in Asia (Japan, Korea, and China)
during the 1990s.
BASFs emphasis on integration fits closely with its philosophy of making
commodities profitably. When the profit goes out of a product, the company
either divests it or closes it down. BASF has sought to improve profitability
in polyolefins in recent years through consolidation (it bought ICIs polypropylene and Hoechsts polyethylene businesses) and joint venturing (BASF and
Shell have pooled their polyolefins under the company name of Basell, with
BASF as the managing partner). Shells contribution came from buying out
Montedison, Shells partner in their Montell joint venture.
Polyolefins are an example of commodities that are struggling with profitability. At least until recently, it appeared that BASF has had more success
in polyethylene than in polypropylene. Basell Chairman Volker Trautz has
said that the boom-and-bust pricing fluctuations that mark the polypropylene
business have effectively destroyed all of the investment made in this polymer
since its inception. Unfortunately, in the drive for profit improvement via
consolidation (a commodity culture technique), BASF was unable to find a
place for their highly specialized polypropylene product line, Hivalloy copolymers. Hivalloy was a promising specialty business, growing rapidly, when
Basell was formed. BASF turned down offers to divest Hivalloy but within 18
months decided that it could not sustain this business within its culture and
decided to close the operation altogether.
In addition to polyolefins, BASFs principal polymer products consist of
the nylon family, including 6, 66, 610, and 6T, and the styrene family, including,
PS, SAN, ABS, ASA, MABS, SB, polyurethanes, and PVC, as well as POM, PBT,
sulfone polymers, and thermosetting polyesters. The only major thermoplastic
polymer missing from its portfolio is polycarbonate. At one time it also
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produced acrylic resins (via an acquisition) but divested this business as

unprofitable in the late 1990s.
The company has experimented with forward integration into the production of magnetic recording tapes (which it invented in the early 1930s) and
automobile components, such as components and interior door panels. However, it found these businesses to be significantly less profitable than materials
and also divested them in the 1990s.
BASF has its own wholly owned distribution company, Ultra Plastics, in
the United Kingdom and Ireland. It entered this business by acquiring a
bankrupt independent distributor that had been representing BASF. Ultra
Plastics is managed as an independent business and has turned out to be a
financial and operational success for BASF. Because BASFs product line is so
broad, Ultra Plastics has found it unnecessary to offer other polymer producers
materials. Despite this achievement, however, BASF has not yet found conditions to its liking in other regions where it might be able to duplicate the
Ultra Plastics story.
9.1.1.2 The Effect of Verbund (Integration) on Product Line

The verbund concept has a profound influence on the products BASF makes
and its business philosophy. BASFs R&D is targeted at identifying materials
that can be made from the chemical intermediates it already produces; or, if
an important product is needed for the marketplace but the monomers or
polymers cannot be produced economically in-house, the company looks for
partners. Examples include Rheinische Olefin Werke (ROW), a joint venture
between BASF and Shell Oil to make ethylene and propylene via the cracking
process; Basell, a joint venture with Shell to make and sell polypropylene and
polyethylene, as mentioned earlier; and a joint manufacturing venture with
General Electric Plastics to make polybutylene terephthalate (PBT).
BASFs entry into acetal copolymer was undertaken as a joint venture with
Degussa in order to merge the technologies of the two companies to make
a commercial product that was technically superior to others. Each partner
had a manufacturing site at one of its plants (BASF in Ludwigshafen, Germany,
and Degussa in Theodore, AL) and supplied raw materials. The other partner
provided the top management for the site; BASF was designated as the
exclusive sales agent. BASF bought out Degussas interests in the joint venture
in 2000, following Degussas merger with Hls. In 2002, BASF closed the plant
at the Degussa site due to a decade of foreign producers flooding the U.S.
market with products priced below the plants costs to produce them.
BASFs strongest product presence is nylon 6, in which it is highly integrated. The company makes caprolactam from cyclohexane and then nylon 6
polymer, mostly, but not always, at the same site. The polymer is then finished
and either compounded or sold directly to processors, compounders, and
fiber producers. BASF also makes its own nylon 6 fibers, to a significant extent
via the direct-melt process, whereby the polymer is spun directly into fibers
without any intermediate stage following the polymerization reactor.
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9.1.2 Asahi Kasei: Targeted Technology

Asahi Kasei is one of Japans largest chemical companies, and it has extended
its manufacturing presence into North America, Europe, and Asia through
joint ventures, acquisition, and greenfield plant construction. Asahi has been
almost alone among Japanese polymer producers in going global instead of
following the more typical pattern of limiting its activities to nearby Asia and
the United States. Asahi has had to be nimble because it is much smaller
than its larger European and American competitors, and it has had to face a
large number of competitors in its home market. Several of those Japanese
competitors have merged in the past few years and are now more formidable:
Mitsubishi Engineering Plastics is the fusion of the engineering plastics businesses of Mitsubishi Chemical, Mitsubishi Petrochemical, and Mitsubishi Gas
Chemical; Mitsui Chemicals is the survivor of a merger with Sumitomo
Chemical.
Like BASF, Asahis production sites were badly damaged during World War
II but were rebuilt afterward. Unlike Germany, however, Japan protected its
small chemical industry from imports for the first several decades after the
war, but the large number of producers has meant keen competition within
the home market. While Japanese consumer goods companies (e.g., electronics
and automobiles) built a major presence in North America and Europe first
through exports and then through local production, most Japanese chemical
companies contented themselves with exporting and only in the past decade
have begun building capacity outside Japan, mainly in Southeast Asia and
China and often via joint ventures. While Asahi has been part of this movement,
it has been more active outside Asia, compared to the others, as noted below.
In the year 2000, Asahi acquired Thermofil, a U.S. compounder with a plant
in Europe and has recently acquired a compounder in China.
The company has relied heavily on new technology to strengthen its
position in the plastics industry, developing its own process technologies for
already existing polymers. Asahi developed its own acetal technology and is
the only producer in the world to make both homopolymer and copolymer
varieties, in addition to being DuPonts only rival for homopolymer. Asahi is
a late arrival to the polycarbonate producers club, but again has used its own
non-phosgene-based technology to do so. Asahi was the second producer in
the world to make polyphenylene ether (PPE), again by its own technology.
The company has even developed its own methyl methacrylate monomer
process and is building the largest such plant in the world, having already
entered the relatively mature acrylic polymer market. Asahi has no bias against
technology developed by others and has several joint ventures that pool the
resources of Asahi with other market leaders (e.g., Dow in polystyrene and
Wacker Chemie in silicones). Asahi is also a major styrenics and polyolefins
producer, the latter now being part of a joint venture.
A vertically integrated fiber producer, Asahi is a major factor in nylon 66
in Asia. Asahis integrated nylon 66 fiber business is certainly not unusual;
every other nylon 66 polymer producer except BASF is integrated forward
into fibers; BASFs fiber business is based on nylon 6. BASF is also present
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in the construction industry through its expanded polystyrene insulation.

Asahis forward integration into fabricated housing, however, is unique and
effectively gives it a laboratory in which to develop products for this large
and growing market.
Asahi employs a mixture of product and market organizational structures
to run its business on a global basis, as shown in Figure 9.2. Like BASF, Asahi
provides local support for businesses that are directed globally from the home
country. Marketing and R&D are under the same executive for each polymer
group, ensuring that the business is customer driven.
9.1.3 Victrex Plc: A One Product Company

Victrex Plc, in the United Kingdom, only manufactures polyetheretherketone
(PEEK) and was formed by a management buyout of the business from ICI
in 1993. PEEK is virtually a unique material and was protected by primary
patents until 2000. PEEK has a high price and is relatively difficult to process,
so its uses are restricted to particularly demanding applications. Nevertheless,
Victrex has reported that its business reached 2300 metric tons (MT) in 2001
with revenues of 72.1 ($160 million), which suggests that its business has
been growing around 20% annually during the past 3 years. Victrex also
reported that it brought 150 new applications to market in 2001, showing how
critical application development is for specialty products. Despite its small
size and high overhead, Victrexs profitability is quite remarkable. Its pretax
return on sales was 31% in 2001, up from 27% during the prior two years.
Although Victrex has been steadily expanding capacity in the past 5 years
and has taken steps to further integrate manufacturing, its return on fixed
assets was an amazing 67% in 2001, up from 52% in the two prior years.
Victrex employs 185 people and maintains marketing offices in Germany and
the United States. Marketing in Asia is conducted through a joint venture with
Mitsui Chemicals of Japan.
Victrex has not had the high-performance polymer marketplace entirely to
itself during the period of its patent protection for PEEK. A number of other
quite similar materials offer varying combinations of high mechanical properties and chemical resistance at high temperatures, although not in the same
balance. Some similar materials are more difficult to fabricate. Victrex PEEK
has been around for over 20 years and has become well known and well
accepted during that period. Newcomers, even ones making virtually the same
polymer, have an uphill battle to compete successfully against the bulwark of
product specifications and performance history that Victrex has built up.
9.2 Compounding
A great many compounders can be found around the world, but independent
(non-integrated) compounding began in the United States in the 1950s. Here,
we will look at the biggest and one of the smallest in the United States to
see how they successfully fend off competition.
Figure 9.2 Asahi Kasei.
Presidents
Overseas Subsidiaries
Asia, U.S., Europe
Sr. Managing Director

High Performance
Polymers & Compounds
Automotive, E/E Mktg.
High Performance (PA, POM, PPE, PC)
Technical Center
Sr. Managing Director

Chemicals & Plastics
ABS, PS, PE,

Acrylics, Elastomers
Technical Center
Manufacturing
President
Asahi Kasei Corp.
Fibers & Textiles

Construction & Housing
Electronics
Health Care
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9.2.1 LNP Engineering Plastics: Global Compounding

LNP was the largest independent (not owned by a polymer producer) compounder in the world until it was acquired by General Electric Plastics in 2002.
Apart from General Electric, LNP has manufacturing sites in North and South
America, Europe, and Asia. LNP has maintained successful and profitable
growth despite being acquired and divested several times. A look at LNPs
history is useful in understanding how it has reached its pinnacle in the
industry.
9.2.1.1 LNPs History

LNP (Liquid Nitrogen Processing) was originally a privately owned custom
cryogenic grinding company when it started up in 1948. In 1961, it adapted
its process to make polytetrafluoroethylene (PTFE) compounds, and 3 years
later began extrusion-compounding a proprietary line of thermoplastic materials in Malvern, PA. In 1970, LNP integrated backward into making its own
PTFE and nylon 66 polymers; unfortunately, the manufacturing scale was too
small and the technology too dated for the plan to succeed, and the subsequent losses nearly bankrupted the company. After a change in senior
management, it sold off its polymer plants and returned to its basic business
focus: compounding. In 1976, LNP was acquired by Beatrice Foods Company
and placed in the Chemicals Division. In 1985, Beatrice sold LNP to ICI, the
British chemicals giant. ICI thought to eventually integrate LNP in North
America into its existing polymer manufacturing business but later decided
to exit the plastics industry altogether and sold LNP to a Japanese firm,
Kawasaki Steel, in 1991. Each of these successive owners left an imprint on LNP.
Beatrice changed managements focus on sales and earnings growth to one
oriented more toward growing profit margins and return on invested capital.
ICI diverted LNPs North American marketing and technical efforts away from
its line of compounds and toward ICIs line of polymers. When ICI divested
LNP, it kept the fluoropolymer business and left LNP with just the thermoplastic
compounds business. These moves first diffused LNPs focus, then allowed it
to refocus on its basic business once more. In Europe, ICI more or less left
LNPs operations alone, as ICI did not have the same need to emphasize
polymer sales there as it did in North America. The result was that the European
operation has retained much more of the entrepreneurial culture than has the
parent company.
Kawasaki brought ownership stability and patience, capital for expansion
and acquisitions, and a return to relative business independence (Kawasakis
only other plastics activity is thermoplastic sheet in Japan). In late 2001,
Kawasaki, feeling Japans economic pinch and desiring to concentrate on steel,
sold LNP to General Electric Plastics, which has announced that it will integrate
its existing custom compounding units (which have sales revenues about twice
those of LNP) into LNP and operate the resulting business as a separate entity
within General Electrics corporate structure. However, it is clear that LNP is
no longer independent, as defined earlier. The rest of this story is still
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135
unfolding, but General Electrics history suggests that LNPs business strategies
will be changed far more radically than under any of the previous owners.
This theory was reinforced when General Electric named one of its veteran
senior executives as the new CEO of LNP, the first time that any owner has
placed an outside manager at the top of LNP.
9.2.1.2 LNPs Business Strategy: Focus on Customer Needs

LNPs primary success strategy has been to focus on customer needs. It faltered
when it deviated from this strategy, such as the attempted backward integration
step in 1970 and the fusion with ICIs polymer business (19851991). It first
began compounding customer-owned materials on a toll basis and then
applied what it had learned about customer needs to make proprietary
compounds. This approach has also led to making a large number of smallvolume, niche compounds that are often specific to a particular application.
Over the years, LNP has noticed that its typical order size has stayed pretty
much around 1 MT (2204 lb).
9.2.1.3 Manufacturing Expansions

LNP first expanded by building a plant in Thorndale, PA, and converting the
small Malvern plant into an extension of its R&D facilities. When LNP added
a plant in California in 1964, it organized the new location virtually as a mirror
image of the parent Pennsylvania company, with duplicate functional management groups. This structure, while useful for giving the new location a
quick start, soon proved to be difficult to manage effectively; the various
functional groups were later subordinated to those located at the home office.
The next domestic manufacturing plant was built in Columbus, OH, in 1979
but, for purposes of order scheduling and logistics, was run as an adjunct
facility of the Thorndale plant. In 2002, LNP announced that it was closing
the California plant, a move prompted by the shift of regional customers
manufacturing operations to Asia on a permanent basis.
In 1998, K-LNP (LNPs parent holding company, discussed later) acquired
a polycarbonate recycling company, GHA Plastics (renamed RC Plastics),
located in Houston, TX. While this move gave LNP control over the quantity
and quality of recycled polycarbonate feedstocks for its other plants, RC Plastics
is operated as a separate division because RC Plastics raw material sources,
manufacturing technology, and retained external customer base differ significantly from those of the rest of LNP. Because of RC Plastics growing business,
a move to a larger site was announced in 2000.
LNPs European site was first built in 1968 in Breda, the Netherlands. This
site was chosen because DuPont, LNPs primary PTFE supplier, had built a
polymer plant in nearby Dordrecht and wanted compounds based on its
Teflon resins made close at hand. The facilities were outgrown in time and
the plant was relocated not far away to Raamsdonksveer in 1976. The business
was run as an independent company with the functional groups coordinating
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their activities with the parent company groups; this organizational structure
is still in place. In a complicated series of events, LNP wound up with ICIs
British long-glass compounding plant in 1991 and relocated it to LNPs own
plant in Thornaby-on-Tees, England, 4 years later. In 1996, LNP acquired
Eurostar S.A., a French compounder with a plant near Paris, and merged its
operations into LNP Europe.
LNP formed a sales office in Singapore in 1992 to develop business in
burgeoning Asian markets and then followed with plant construction in
Malaysia in 1995 and two expansions since. While manufacturing and sales
are run independently here, some technical and administrative services are
being provided from the United States until the Asian company becomes large
enough to support this overhead locally.
In 1999, LNP acquired MIXCIM Indstria e Comrcio Ltda., So Carlos,
Brazil, as its first manufacturing presence in Latin America. LNP/MIXCIM is
being run as an independent subsidiary, with sales and R&D located at the
manufacturing site. In 2000, LNP announced formation of a marketing joint
venture with Vetrotex America, the subsidiary of the French glass manufacturer,
to sell long-glass concentrates to injection molders in the North American Free
Trade Association (NAFTA) region. In 2001, LNP built a greenfield plant in
San Luis Potosi, Mexico. This plant is managed within the NAFTA as part of
LNPs North American manufacturing operations. It can be seen that LNP has
typically expanded at existing sites or greenfield facilities but recently has also
added acquisition as a selective tool to solidify its supply base and broaden
its market reach.
9.2.1.4 Regional Management, Globally Coordinated

As LNP has grown overseas, it has not attempted to direct these sites from
the home office. K-LNP was set up to provide a central holding company to
administer operations around the world in 1995. Figure 9.3 shows LNPs global
structure under K-LNP. K-LNPs board, consisting of the division heads plus
K-LNP executives, meets quarterly to establish broad overall policy, review
progress toward objectives, and consider whether any regional activities need
to be extended on a global basis. Major customers are assigned to global
account managers, who then coordinate meeting the customers worldwide
needs, regardless of where the manager is located.
9.2.1.5 Patented Technology for Marketing Strength

LNP is unique among compounders in that it has gone beyond the usual
trade-secret approach to technology. It has sought patents on its technology
and unhesitatingly enforced its patents against competitors, such as for longglass products, and it has sued Ticona, DSM, and RTP for patent infringement.
Ticona settled by paying royalties and cross-licensing its own patents to LNP;
DSM elected to exit the business altogether, because its small sales revenues
in this product line did not justify either defending or settling the lawsuit. LNP
LNP Europe
Raamsdonksveer,
The Netherlands
Plants also in UK, France
LNP Asia Pacific

Seremban, Malaysia
Sales Office in Singapore
LNP Japan
Tokyo, Japan
RC Plastics
Houston, TX, USA
Figure 9.3 LNP Engineering Plastics (prior to GE acquisition in March 2002).
LNP Americas
Exton, PA, USA
Plants in PA, IN
and Mexico
K-LNP
Exton, PA, USA
LNP-MIXCIM
Sao Carlos, Brazil
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138
President
Figure 9.4
VP
Finance
VP
Operations
Sales Mgr.
Plant Mgr.
Lab Mgr.
Modified Plastics, Inc.
won most of its points vs. RTP but only won negligible damages and lost on
one issue that has allowed RTP to remain in the business. Because the U.S.
patents expire in 2002, the whole issue will be moot shortly.
LNP has also sought licenses from polymer producers to manufacture
compounds based on unique materials, such as Dows syndiotactic polystyrene, DuPonts amorphous liquid crystal polymers (LCPs), and Shell Chemicals
polyketone. These have not been exclusive agreements, but they protect LNPs
rights to develop patented compounds based on these materials in cooperation
with the polymer producer, without fear of the results being shared with other
compounders.
9.2.2 Modified Plastics: Regional Compounding

Sometimes a niche market can be successfully defended against bigger, wealthier companies for an indefinite period of time. Modified Plastics in Anaheim,
CA, is a good example. The relative geographic and time zone isolation of
the American West Coast from the rest of the country makes it difficult to
compete from outside the region against a skillful local firm.
Former LNP employees founded Modified Plastics in 1977 as a toll compounder (the customer supplies the base resin). The founders also started a
color compounding business, Color Science, co-located with Modified Plastics.
The combined companies have grown steadily over the years, offering proprietary products in addition to toll compounding, and they sell throughout
the 11 westernmost states plus western Canada and the maquiladores in the
Mexican border states. With the closure of LNPs California plant, Modified
Plastics is now the largest compounder on the West Coast. Modified Plastics
is organized along functional lines as shown in Figure 9.4.
9.2.2.1 Using a Time Zone against Larger Competitors

Several larger companies based in the American East and Midwest have tried
to move in on Modified Plastics turf but have failed. Each established or
acquired a local compounding plant but then made the mistake of treating
the plant as just another manufacturing site that ran on schedules set centrally.
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Southern Californias plastics processors are larger in number but smaller in

size than in any other region of the country. They require fast service (often
one day), something that Modified Plastics does routinely and uses effectively
as a competitive advantage. The geographic and time zone isolation of the
West Coast makes it nearly impossible for companies in the American Midwest
and East Coast to handle these requirements effectively from afar. Also, these
firms have not been prepared to do business with a large number of smallvolume, niche products, preferring to run off large volumes of a few products
that could then be shipped directly to volume users or stocked for smaller
users. The problem with this thinking is that customers know from harsh
experience that if they allow one supplier to cherry-pick their large-volume
needs, they will have to pay a stiff premium to other suppliers for their smallvolume items, if they can get them at all. The net result is that the West Coast
has remained largely a local market for plastic materials and parts. Because
many of the West Coast types of end users (e.g., aerospace, computer printers,
farm irrigation products) are not widely found elsewhere in the United States,
this market has also taken on a self-contained character.
Even LNP has finally given up and closed its California plant, which
predated Modified Plastics establishment by a decade and a half. LNP gave
as its reason the emigration of its customer base to Asia, but these were much
larger, global customers that do not affect the smaller regional businesses that
Modified Plastics serves. In effect, LNP conceded that it had lost its small
customer base to Modified Plastics.
9.3 Distribution
Distribution is another sector in which we find a great many competitors.
Here, we will just feature one unique distributor, one that is owned by a
polymer producer.
9.3.1 Polymerland: Integrated Distribution

In 1985, General Electric Plastics acquired Borg Warner, one of the original
acrylonitrile-butadiene-styrene (ABS) producers and a superb marketing company. Part of the package was a unique distribution operation, Plastics Service
Centers. Borg Warner was the first and, at that time, the only polymer producer
to own a distributor that handled both the parents products and also those
made by other polymer producers. General Electric changed the name to
Polymerland but then more or less ignored it, leaving it as an independent
unit and adding General Electric products to the line. From the outside, it
appeared that General Electric regarded Polymerland more as a training
operation or an experiment than as a long-term holding, although they refused
offers to sell it and stated that it was seen as an integral part of their plastics
business. As time wore on, General Electric began integrating Polymerland
140
piece by piece into the parent organization, suggesting that complete assimilation would be Polymerlands eventual fate. However, as time wore on,
General Electric management came to see that integrated distribution via
Polymerland had distinct value apart from its conventional polymer manufacturing business. Polymerland also expanded into Europe in the 1990s, where
it acquired and assimilated an Italian nylon compounder.
9.3.1.2 Using the Internet

In 1999, Polymerland initiated a concerted effort to convert its customer
interface away from phone and fax to the Internet. At the end of 2000,
Polymerland reported that it had successfully converted 20% of its sales volume
to Internet transactions, but has since admitted that this only represents 5%
of its customers. While Polymerland continues to push its e-commerce interface
with customers via advertising, publicity, trade shows, and sales contacts, it
now acknowledges that it will take a far longer time to make converts than
originally thought.
Polymerland is also promoting use of the Internet by customers for color
selection. Not every customer will be able to do this, as it requires both
hardware and software that are compatible with that of Polymerland so
that colors will be reproduced accurately on both ends. Nevertheless, it is
an imaginative method to cut down dramatically on the time required for
color selection, a process that can consume several weeks under normal
conditions.
9.4 Processing
Over 12,000 processors are located in the United States (some say over 15,000),
but we will look at just two, a large molder and a small extruder. Each has
found a particular way to compete successfully.
9.4.1 Nypro: Fewer Customers Equal More Sales

Little more than 20 years ago, Nypro was a small custom molder in New
England. It was founded in 1955 and had been slowly growing in the fashion
of many custom molders: a handful of repeat customers and many more onetime customers. The president at that time (now chairman), Gordon Lankton,
was not satisfied with this situation and realized that the company must
differentiate itself from its competitors or its existence would be continually
at risk. In the course of seeking capital for rapid growth, Nypro instituted an
employee stock-ownership plan (ESOP) that helped turn tax-sheltered earnings
into equity for expansion and afforded every employee an owners interest
in the companys prosperity.
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9.4.1.1 How a Small Molder Became a Big One

The most counterintuitive move made by Nypro was to reduce its customer
base. By dropping its smaller and one-time customers, Nypro was able to
redeploy its assets, concentrating on upgrading value and adding additional
business from the remaining larger customers. The selection process focused
not just on size but also on customers whose end-use markets showed the
most potential for profitable growth and who seemed likeliest to capitalize
on this potential. These customers, in turn, led Nypro to follow them overseas
and build molding plants nearby. Nypro has steadily added additional capabilities and services to its offerings so that it is far more than just another
customer molder. In fact, Nypro was one of the first molders to characterize
itself as a contract manufacturer.
Nypro also looked for additional large potential customers in the selected
end-use markets and succeeded in converting them to Nypro customers, with
the same comprehensive approach. This has involved analyzing the customers
problems to see if Nypro could offer a solution. For example, Motorola
complained that the printed surfaces of its cell phones tended to wear to the
point of being illegible. Nypro solved this problem by using preprinted
polycarbonate labels that were insert-molded and fused into the polycarbonate
phone body. Not only did Nypro solve the customers problem, but it also
eliminated two manufacturing steps: pad printing (with attendant yield losses
due to occasional mis-registration) and hard coating (the label is purchased
with a hard coating already on it), with significant cost reductions. Nypro was
then able to offer this design improvement to other cell phone makers, further
enhancing its reputation in this market segment. Nypro has extended this
same philosophy to bi-component molding, again a technology that improves
product design while lowering manufacturing costs.
Nypros marketing program, known as Million Dollar Partnerships, establishes relationships with large customers who buy more than $1 million
annually from Nypro. Over the past 10 years, Nypro increased its base of such
customers from 22 to 74, distributed nearly evenly among health care, electronics/telecommunications, consumer/industrial, and automotive markets.
This diverse balance helps insulate Nypro from the more severe swings in the
business cycle.
Nypro has embraced electronic data management for quality control and
improvement, color control, integrated design, and global business management. The latter is particularly critical in meeting globalized customer requirements, as over one third of Nypros business is now done overseas, effectively
rising from almost nothing just 10 years ago. Nypro has an unusually high
R&D effort for a molder (4% of sales) and uses the Six Sigma approach to
continuous quality improvement.
Nypro has a decentralized geographic management structure as shown in
Figure 9.5, with regional vice presidents reporting to the current president/
CEO, Brian Jones. Coordination of global customers and markets is facilitated
through several worldwide conferences held during the year. A global
142
President/CEO
VP
Finance/CFO
VP
North America
Figure 9.5
VP
South America
VP
Europe
VP
China
Nypro, Inc.
technology conference helps everyone stay abreast of the latest developments

and share their experiences in the use of these techniques. Nypro uses two
resourceful methods to train its managers:
Participation on their local plants board of directors (each plant is an
incorporated entity), where they are exposed to the big picture of running
a business and can carry this information back to their co-workers
Nypros Leadership Institute, a weeklong course designed and conducted
by a local university for Nypro, where managers from around the world
can come to sharpen their skills and get to know one another better
9.4.2 Certified Thermoplastics: Niche Processing

Certified Thermoplastics (CTP) describes itself as making custom advanced
extrusions of engineering thermoplastics. Unlike Modified Plastics, described
earlier, this West Coast processor competes both nationally and internationally
by concentrating on high-precision profile extrusions made from engineering
and high-performance materials in small volumes. CTP has found that this
approach has led it into highly technical applications for electrical/electronics,
business machines, industrial machinery components, and non-automotive
transportation (e.g., from mass transit to aerospace). A relatively small company, it was founded in 1978 by its current owner and president, George
Duncan. It employs a functional organization, with key personnel often
performing multiple jobs, as shown in Figure 9.6. CTP has succeeded in niche
markets that other companies have either shunned or found too small to be
profitable.
How does CTP find gold where others find only gravel? First, it has gradually
built a reputation for handling small but technically challenging work in
materials that few other profile extruders understand. Second, CTP makes its
own tooling, again capitalizing on experience that not many others have.
Third, CTP handles post-extrusion fabricating and decorating steps that add
value to the services they provide. Fourth, CTP offers to design parts, ensuring
that there will not be any unforeseen production problems, as well as (once
again) adding value to what they offer to the customer. Fifth, CTP filters its
customer base by sticking to engineering plastics profiles and short runs (small
143
Case Studies
President
(Sales)
Accounting
Operations Manager
Plant Manager
Figure 9.6
Design and Technical Service
Certified Thermoplastics Co., Inc.
quantities) in other words, by avoiding the temptation to take on larger

jobs in commodity polymers, even if an existing customer requests it.
9.5 Equipment
9.5.1 Husky Corporation: Molding Systems
Husky Corporation is not only an injection molding machine manufacturer
but also bills itself as the worlds largest moldmaker. It is a large company
(roughly $700 million in annual sales) but is actually only a small competitor
in a huge worldwide injection molding machine market of an estimated $20
billion, shared by dozens of companies competing in every significant geographic region.
How does a relatively small company survive in such an environment?
Huskys answer has been specialization to attain maximum penetration of
targeted markets and integration to control quality and costs. Husky started
out by making relatively small, high-productivity machines for thin-walled
packaging containers, such as ice cream tubs and lids. Having established a
strong presence in this market, it extended its line of machinery to making
polyethylene terephthalate (PET) injection blow molding systems in 1978.
Because such systems run steadily on the same material, they are ideally suited
to incorporating hot runner molds, which Husky began designing, making,
and supplying. These PET packaging machinery systems also utilize robots
for handling parts; Husky then began designing, making, and supplying robots
as yet another component of a complete, turnkey plant.
Husky is headquartered in Ontario, Canada, but has added manufacturing
sites in the United States (Vermont) and Europe (Luxembourg) and 18 technical
centers throughout the industrialized world. The technical centers serve as sales
and marketing sites where potential customers can see Huskys equipment in
action, even running their own molds. It is difficult to beat an actual demonstration of how ones own tooling will run as an inducement to buy. The
power of live demonstrations is an important reason why participation in trade
shows is an integral part of Huskys marketing plan. The equipment on display
is usually sold during the show and shipped directly to the new owner.
144
9.6 Common Threads

What are some of the more notable common threads that link these companies
in their successful quest for profitable business?
Adaptability All of these companies started with a basic idea for one
or more products that were useful for certain end uses, but the idea did
not end here. Each company was next able to broaden the applicability
of the product to find additional end uses, either through product modification or through introducing the product to other users whose performance requirements were similar to the first end use.
Integration Not every successful company has integrated manufacturing,
but it is instructive to note how many do. Integration helps to contain
costs and capture earnings that would otherwise go to suppliers. Integration
also adds scale, an important consideration when the business is headed
toward or has already taken on the commodity characteristics.
Dominant local presence or global emphasis Small companies can
succeed by being the best in a local area, but when they wish to grow
beyond a certain point, they must eventually go global. A regional presence
is only an intermediate stage to going global.
Focus closely on selected customers needs When company management
begins to concern itself more with internal matters than with external ones
(customer needs), the company is on its way to tr ouble. All of the
companies examined in this chapter are focused on selecting their customers, identifying their needs, and finding a profitable way to satisfy
those needs.
Chapter 10
Summary
What have we learned about the requirements of the plastics industry for
successful management that differ from those for other industries?
The plastics industry is fundamentally based on technology that advances
constantly and which shapes the industrys markets and business models.
Many other large industries, such as construction, are not nearly as dependent on technology.
The industry requires technically trained people to manage and run it, but
in an open and shared-decision style rather than by command and control.
Many other large industries do not require as many personnel with such
training, nor do they need such an open management style to succeed.
The nature of the industry is for segments of it to be in frequent transition
between different cultures of growth, size, and style. Prompt recognition
of these changes and adapting to them is a top priority for management,
because a mismatch of culture, style, and technology within a company
will not produce successful results. Developing new applications and
products requires an integrated technical marketing effort that is essential
to success.
The average life cycle of a product varies from very long to quite short
as one moves downstream from polymer production to finished parts. This
would suggest that increased focus on product and application development would be required as one moves downstream, but in fact, research
and development expenditures as a percent of sales are typically higher
as one moves upstream. The companies that are exceptions to this rule
are usually more profitable than other companies in their sector. While
this characteristic is not peculiar to the plastics industry, it demonstrates
that many plastics companies could improve their financial results by
changing their business structure, emphasis, and culture, with respect to
research and development and accompanying value pricing.
145
146
Acquisitions, mergers, and joint ventures are constantly reshaping the

plastics industry, but many of these activities, mainly acquisitions, do not
turn out well. This is often because companies are acquired for the wrong
reasons or their assimilation is executed badly, particularly with respect to
acquired personnel. Acquisitions require considerable management time
and need to be handled as part of a process that begins with a business
plan and concludes only when the expected results are obtained. It is a
foolish waste of resources to treat acquired personnel as disposable unless
a contraction is an essential element to saving a business from bankruptcy
and expansion is not likely in the near future.
Successful management in the plastics industry is not the result of luck or the
personal accomplishments of the chief executive officer. It is the result of
applying the analysis, logic, and creativity characteristic of the scientific method
used to discover technology to the problems of organizing, planning, and
executing business decisions, then inspiring others to carry them out.
Bibliography
Axelrod, A., Patton on Leadership, Strategic Lessons for Corporate Warfare, Prentice Hall,
Paramus, NJ, 1999.
Drucker, P., Managing for Results, Harper & Row, New York, 1964.
Drucker, P., The Effective Executive, Harper & Row, New York, 1966.
Drucker, P., Innovation and Entrepreneurship, Harper & Row, New York, 1985.
Drucker, P., The Essential Drucker, HarperCollins, New York, 2001.
Jones, R., Cultures in Collision: Foreign Ownership of U.S. Plastics Companies, Society
of Plastics Engineers Annual Technical Conference, Detroit, MI, May 1992.
Jones, R., Strategic Partnerships for the 21st Century, Society of Plastics Engineers Annual
Technical Conference, Indianapolis, IN, May 1996.
Jones, R., U.S. Independent Compounding Past, Present, Future, Plastics Engineering,
May 1996
Jones, R., Guide to Short Fiber Reinforced Plastics, Hanser, Munich, 1998.
Jones, R., Polymethylpentene: Reinventing a Mature Product, Society of Plastics Engineers
Annual Technical Conference, New York, May 1999.
Jones, R., New Routes to Market in the 21st Century, Plastics Engineering, August 2000.
Parkinson, C., Parkinsons Law, Riverside Press, Cambridge, MA,1957.
Peters, T., In Search of Excellence, Warner Books, New York, 1982.
147
TX68837_frame_Index Page 149 Monday, August 26, 2002 6:56 AM
Index
Achievements, planned goals vs., 111

Acquisitions, joint ventures, and
divestitures, 115126
access to markets, 116117
access to technology, 117
acquisitions vs. joint ventures, 122123
challenges of being acquired, 124126
company sold, 125126
selling of company, 124125
divestitures, 123124
manufacturing capacity, 117118
successfully integrating acquisitions
into existing operations,
118119
vertical sector acquisition, 118
when and how not to acquire, 119122
Acrylonitrile-styrene-acrylate (ASA), 128
Aerospace markets, 51
Age discrimination lawsuits, 94
Ambition, 6
American lawsuits, 59
Amoco, 127
Anti-capitalists, 13
Anti-discrimination laws, 95
ASA, see Acrylonitrile-styrene-acrylate
Asahi Kasei, 131, 132, 133
Asia, marketing in, 132
Asset, most important, 117
Aufsichsrat, 67
Authority, delegating, 11
Automotive business, suppliers, 46
Bankruptcy, 3, 49, 146

BASF, 118, 132
emphasis on integration, 129
as exclusive sales agent, 130
history of, 128
B2B e-commerce, see Business-tobusiness e-commerce
Big Three automobile manufacturers, 46,
78, 94
Blind ads, 81
Blow molding, 28
Board of directors
management oversight function of, 66
purpose of, 67
Boeing, 27
Bonuses, 90
Boom-and-bust cycles, 14
Bottom-up planning, 10
Brand names, 75
Business
-to-business (B2B) e-commerce, 27
culture, 53, 60
divestitures, 80
focus, change of, 120, 124
goals, 70
operations, see Technologies and
markets, business operation
shaped by
plan, principal components, 70
profitability of, 13
success of merging similar, 123
units, 60
149
150
Commodity
cultures, 57, 58
polymers, 19, 34
producer research and development,
37
Communications, signal loss in, 20
Community
liaison, 4
relations, proactive approach to, 4
Company(ies)
acquisition of for wrong reasons, 146
boards, majority membership of, 66
capital-intensive part of, 123
goals, 10
publicly held, 111
recruiters, 85
selling of, 124
sold, 125, 126
stepchild, 124
urge to buy troubled, 120
Company culture and organization,
5368
board of directors, 6668
management styles, 6466
size intertwined with culture, 5460
commodity culture, 5758
entrepreneurial culture, 5556
managerial culture, 5657
nationality/ethnic culture, 5960
technology culture, 5859
tailoring organizational form to
business needs, 6064
hybrid organizations, 64
organizing by function, 6061
organizing by geography, 63
organizing by market, 6263
organizing by product, 6162
Compensation, 126
changes, displeasure over, 91
cuts, 95
goals, 122
plans, 90
Competition, globalization of, 1
Competitive rankings, 113
Competitor(s)
elimination of, 119
growth-oriented, 80
management, strategies revealed by,
114
reason for acquiring, 115
using time zone against, 138
CAD, see Computer-aided design

CAE, see Computer-aided engineering
Capital
human, 121
return on invested, 109
Career
growth, 97
management as 37
Carnegie, Andrew, 56
Case studies, 127144
common threads, 144
compounding, 132139
modified plastics, 138139
NP engineering plastics, 134138
distribution, 139140
equipment, 143
polymer manufacturing, 127132
Asahi Kasei, 131132
BASF, 128130
Victrex Plc, 132
processing, 140143
Certified Thermoplastics, 142143
Nypro, 140142
Cash burn, 14
CATV, 48
Cease and desist injunction, 40
Celanese, 41
Cell phones, 48, 141
CEO, see Chief executive officer
Certified Thermoplastics (CTP), 142, 143
CFO, see Chief financial officer
Change
forms of, 8
managers resistant to, 53
warning signs of major, 9
Chief executive officer (CEO), 6, 60
advice offered to, 67
manipulation of earnings by, 15
money spent by, 6
worst types of, 6
Chief financial officer (CFO), 66
Chief operating officer (COO), 60
City building inspectors, 123
Classified advertisements, 81
Co-determination law, 67
College graduates, potential performance
of, 85
Color Science, 138
Committee-itis, 72
151
Index
Compounders, 108
Compounding
custom, 22
global, 134
regional, 138
Compression molding, 28
Computer-aided design (CAD), 74
Computer-aided engineering (CAE), 74
Confidential information, 87
Consolidation, of companies, 30
Consultants, 96, 114
Consumer goods, 49, 131
Continuing education, 89
Contract manufacturers, 29
COO, see Chief operating officer
Corporate governance model, 67
Corporate loyalty, 97
Corporate monuments, 120
Cost(s)
benchmark for allocation of, 107110
compounder, 108109
distributor, 109
machinery manufacturer, 110
processor, 110
definition of, 103
opportunity, 101
pressures, 49
sales transaction, 103
savings, 80
service transaction, 103
Credit
decisions, 79
risky, 79
Crompton, 30
Cross-licensing, 18, 117
CTP, see Certified Thermoplastics
Culture(s), see also Company culture and
organization
business, difference between
American and non-American,
60
change, slowest route to successful, 54
commodity, 57, 58
entrepreneurial, 55
German, 68
management ignoring, 53
managerial, 56
quasi-government, 55
technology, 58
Currency exchange considerations, 19
Custom compounding, 22
Customer(s)
best interests of, 7
competitors, 113
dealing ethically with, 15
direct sales relationships with, 20
dropping of, 79
feedback, 74
-focused companies, 54, 63
just-in-time, 24
lists, 87
needs, 8, 17
on loan from supplier, 25
perception of company by, 75
relationships
distribution, 25
processing, 28
satisfaction, 112
slow-paying, 80
surveys, 113
D
DaimlerChrysler, 46
Davis-Standard, 30
Debts, 79
Decision-making authority, 71
Deloitte & Touche, 80
Delphi, 22
Demand volatility, 70
Developmental products, 105, 106
Differential pricing, 21
Dioxins, formation of, 42
Direct sales, 20
Discounts, retroactive, 76
Distributors, 109, 121
Divestitures, see Acquisitions, joint
ventures, and divestures
Do as I say not as I do philosophy, 12
Dow, 118, 131, 138
Downsizing, 95, 97
Downstream
activities, 58
polymer processing steps, 17
processing, 18
Dual-career families, 88
Due-diligence review, 123
DuPont, 41, 127, 131
152
amorphous liquid crystal polymers,
138
Zytel nylon, 75
E
Earnings
before interest and taxes (ELIT), 46
manipulation of by CEO, 15
tax-sheltered, 140
EBIT, see Earnings before interest and
taxes
E-commerce
business-to-business, 27
compounding and, 24
effects of, 27
introduction of, 10
long-term value of, 14
order processing, 21
pressure to use, 77
use of by polymer producers, 20
Economies of scale, 116
Educational background, 83
Embezzlement, 66
Employee(s)
entry-level, 65
morale, 9
overqualified, 83
potential, 86
stock-ownership plan (ESOP), 140
training of new, 88
Employment
agreements, 86
lifetime, 5
offers of, 82
termination, 12
End-use market, favorite, 47
Engineering polymers, 113
Enterprise resource planning (ERP), 21,
76, 77, 119
Entrepreneurial culture, 55
Entrepreneurial founders, 125
Entry-level employees, 65
Environmental laws, violations of, 66
Equipment types, 39
ERP, see Enterprise resource planning
Errors, repeated, 2
ESOP, see Employee stock-ownership

plan
European polymer producers, 59
Executive directors, 67
Executive search agencies, 82
Extrusion, 28
F
Family-owned businesses, 5657
Farm irrigation products, 139
Fax-back system, 26
FDA, see Food and Drug Administration
Federal employment anti-discrimination
laws, 95
Feedback, positive, 12
Feedstock costs, fluctuations in, 1
FEP, see Fluorinated ethylene-propylene
Financial statements, 111
Flame-resistant formulations, 48
Fluorinated ethylene-propylene (FEP),
37, 38
Food and Drug Administration (FDA), 45
Food packaging, 44
Ford, 46
Frivolous lawsuits, 79
Functional organization, 61
G
GDP, see Gross domestic product
Gender discrimination lawsuits, 94
General Electric, 71, 94
corporate structure, 134
Lexan polycarbonate, 75
Polymerland, 118, 139
General Motors, 22, 46
Geographic area management, 128
Geographic organization, 63
Germany
corporate governance model used in,
67
culture, 68
GHA Plastics, 135
Global compounding, 134
Global marketing, 128
Globe-spanning companies, 77
153
Index
Goal(s)
setting, responsibility for, 10
stretch, 11
Golden handshakes, 122
Government law, violation of, 93
Grant back, licenses involving, 117
Greenfield plant, 136
Gross domestic product (GDP), 1
H
Hoechst, 56
Homopolymer, DuPont rival for, 131
Honda, 47
HR, see Human resources
Human capital, 121
Human resources (HR), 78
Husky Corporation, 143
Hybrid organization, 64
Hypothesis, testing of, 2
I
Illegal activities, 65
Incompetence, people promoted to level
of, 92
Industrial components, 50
Industrial Revolution, 99
Industry segments, foundations of, 1731
compounding, 2224
e-commerce, 24
geographic dispersion for customer
focus, 24
supplier relationships, 2324
technology, 2223
distribution, 2428
customer relationships, 2526
effects of e-commerce, 2728
geographic dispersion, 27
supplier relationships, 26
equipment, additives, and other, 2931
critical mass, 30
technology, 2930
routes to market, 2021
scale and integration, 1920
technology, 18
processing, 2829

technology, 28
Inflation rates, 108
Information
confidential, 87
return on investment, 110
technology (IT), 77, 119
In-house seminars, 90
Injection molding, 28
Integrated manufacturing, 144
Integrated production, risks to, 19
Internet, 21
bulletin boards, 81
companies, liquidated, 14
effort of Polymerland to convert
customer interface to, 140
hype about, 47
promoting use of, 140
selling directly to customers via, 27
Interpersonal relationships,
entrepreneurial company, 55
Intrapreneuring, 58
Inventory
disposal of slow-moving, 80
levels, 69
management, just-in-time, 29
ISO 9000 certification, 76
ISO 14000 environmental standards, 5
IT, see Information technology
J
Japanese consumer goods companies,
131
Job enrichment, 88
Joint ventures, see Acquisitions, joint
ventures, and divestitures
Just-in-time customers, 24
Just-in-time deliveries, 122
Just-in-time inventory management, 29
K
Kanban, 29
Kawasaki, 134
Knowledge workers, 64, 71
Kraton thermoplastic elastomer
compounds, 26
154
performance appraisal, 1112

profitability, 1315
styles, 64
supply-chain, 21
tools, see Tools for management
Manager(s)
compensation goals, 122
repotted, 122
Managerial culture, 56
Managing for success, 6980
managing costs, 7980
managing and integrating functions,
7179
administration, 7879
manufacturing, 7678
research and development, 7374
sales and marketing, 7476
planning for success, 6971
Mannesmann AG, companies acquired
by, 30
Manufacturers
contract, 29
overseas, 127
Manufacturing
capacity, 117
expansions, 135
integrated, 144
polymer, 17
Market(s), see also Technologies and
markets, business operation
shaped by
access, 116
aerospace, 51
-clearing level, products priced at, 58
end-use, favorite, 47
-focused companies, 63
intelligence, 113
major, 43
medical, 50
military, 51
organization, 62
-organized company, focal point of, 62
overseas, favorite route to, 116
packaging, 44
position, 101
research, 73, 112
segments, limited number of, 8
suppliers existing in highly
competitive, 31
Marketing
Asian, 132
Labor peace, 68
Lawsuits
age discrimination, 94
American, 59
frivolous, 79
gender discrimination, 94
patent, 40
race discrimination, 94
Layoffs, due to restructuring, 94
LCPs, see Liquid crystal polymers
Leadership by example, 12
Licenses, grant back, 117
Lifetime employment, 5
Limiting temperature index (LTI), 48
Liquid crystal polymers (LCPs), 34, 138
Liquid Nitrogen Processing (LNP), 134
business strategy, 135
Engineering Plastics, 118, 137
parent holding company, 135
LNP, see Liquid Nitrogen Processing
Logistic costs, 19
Lone wolf personalities, 85
Loyalty
corporate, 97
need for, 13
LTI, see Limiting temperature index
M
Machinery manufacturers, 110
Make-or-buy situation, 40
Management
competitors, strategies revealed by,
114
ego, investments in, 105, 106
error, 8
geographic area, 128
guiding principles, 7
ignoring of culture, 53
information, 78
performance problem of, 12
positions, personalities found in, 7
responsibilities, 715
business organization, 8
change, 810
company goals, 1011
leading by example, 1213
155
Index
efforts, insufficiently focused, 9

global, 128
integration of technology and, 73
program, Nypro, 141
savvy, 74
strength, patented technology for, 136
technical, 74
Marketplace, detection of changes in,
20
Material safety data sheets (MSDSs), 25,
42
Mazda, 47
MBA studies, comprehensiveness of, 83
Medical market, recession proof, 50
Medieval army command mentality, 7
Metallocene catalysts, 18
Me-too efforts, 28
Micromanagement, 3, 11, 89
Military markets, 51
Million Dollar Partnerships, 141
Mitsubishi Engineering Plastics, 131
Mitsui Chemicals, 132
Model, corporate governance, 67
Modified Plastics, Inc., 138
Monomer-to-polymer production, 19
Monopolies, 8
Monsanto, 56
Morale, 94
Motorola, 141
MSDSs, see Material safety data sheets
Leadership Institute, 142

marketing program, 141
O
Objectives, failures to prioritize, 3
OEMs, see Original equipment
manufacturers
One-stop shopping, 40
Opportunity cost, 101
Order processing, 21
Organization
functional, 61
geographic, 63
hybrid, 64
lacking trust, 13
market, 62
need for loyalty, 13
product, 61
Original equipment manufacturers
(OEMs), 24, 28
OSi Specialties, 30
Outplacement counseling, 94
Overqualified applicants, 83
Overseas manufacturers, 127
Overseas markets, favorite route to, 116
Overseas operations, companies with, 67
Ownership
cultures reflecting characteristics of, 55
stability, 134
NAFTA, see North American Free Trade

Association
National Labor Relations Board, 99
National Sanitation Foundation (NSF), 45
NEBIT, see Net earnings before interest
and taxes
Net earnings, 102
Net earnings before interest and taxes
(NEBIT), 108
Nissan, 47
Non-compete agreements, 87
Nonprofit companies, 13
North American Free Trade Association
(NAFTA), 49, 136
NSF, see National Sanitation Foundation
Nypro, 140
Packaging
containers, thin-walled, 143
market, 44
specialty, 50, 103
Patent(s)
holders, monopoly of, 41
lawsuits, 40
licensing of, 41
Payroll, 13
PBT, see Polybutylene terephthalate
PC, see Polycarbonate
PEEK, see Polyetheretherketone
Perfluoroxyalkoxy (PFA), 38
Performance reviews, 91, 93
Personality(ies)
lone wolf, 85
156
mixture of found in management

positions, 7
traits, 85
Personnel
junior, 20
non-professional, 98
replacement of problem, 119
temporary, 96
PET, see Polyethylene terephthalate
Peter Principle, ignoring of, 92
Petrochemical subsidiaries, 57
PFA, see Perfluoroxyalkoxy
Phillips, 127
Philosophy, do as I say not as I do, 12
Plant maintenance, contracted out, 96
Plastics industry, most capital-intensive
segment of, 17
PMP, see Polymethylpentene-1
Polaroid Corporation, 49
Polybutylene terephthalate (PBT), 223,
130
Polycarbonate (PC), 23, 34, 46, 75
Polyetheretherketone (PEEK), 20, 34,
132
Polyethylene terephthalate (PET), 44, 143
Polymer(s)
commodity, 19
manufacturing, 17, 107
producers
direct sales used by, 20
European, 59
restructuring at, 26
products, commodity, 34
volume and revenue, 36
Polymerland, 139, 140
Polymethylpentene-1 (PMP), 38, 45
Polyolefins, 19, 57, 129
Polystyrene, flame-retardant, 22
Polytetrafluoroethylene (PTFE), 38, 39,
134
Polyurethanes (PUR), 34
Polyvinyl chloride (PVC), 42, 44
Press announcements, 19
Price
-fixing, 66
relationship of volume vs., 35
Pricing
differential, 21
value, 145
Private business ownership, 13
Privately held firms, boards of, 67
Private network, 21
Problem-solving, 86
Processing
equipment, 39
principal forms of, 44
Product(s)
average life cycle of, 145
category checklist, 106
developmental, 105
introductions, 102
line(s)
effect of verbund on, 130
mature, 123
regional distributor, 121
revisions, 80
method of categorizing, 105
organization, 61
recognition, 75
sales revenue, 102
specifications, 73
Todays Breadwinner, 104, 105, 106
Tomorrows Breadwinner, 104, 105,
106
Yesterdays Breadwinner, 104, 105, 106
Production, contracted out, 96
Profit
highest total gross, 39
margins, strains on, 1
Profitability
analysis, current, 103
commodities struggling with, 129
improving, 63
major factor in, 23
potential, 104, 107
Project teams, short-term purpose of, 72
Promotions, 92
Proprietary processor-end users, 48
PTFE, see Polytetrafluoroethylene
Public domain, 40
Publicly held company, 111
PUR, see Polyurethanes
Purchase contract, 76
PVC, see Polyvinyl chloride
Q
Quasi-government cultures, 55
Index
R
Race discrimination lawsuits, 94
R&D, see Research and development
Reaction injection modeling (RIM), 43
Recruiters, company, 85
Reducing unit costs by spreading, 115
Regional compounding, 138
Repotted managers, 122
Research and development (R&D), 37,
72, 127
carte blanche of, 73
commodity producer, 37
inability to pay for, 58
joint ventures, 123
product units incorporating sales and
marketing and, 62
seeking people for, 82
Resources
assigning of, 106
waste of, 146
Responsibility, sharing of, 11
Restructuring
corporate loyalty in days of, 97
layoffs due to, 94
Retention, 97
Retroactive discounts, customer demand
for, 76
Return on investment information, 110
Review data, drawback of common, 91
RIM, see Reaction injection modeling
Rotomolder, 39
S
Salary
reviews, 91
structure, 90
Sales
direct, 20
growth S curve, 104
profitable, 14
representative, 20, 37
transaction costs, 103
SAN, see Styrene acrylonitrile
Scandals, 15
Schmoozing, 25
Scientific method
creativity characteristic of, 146
157
value of, 2
wishful thinking and, 3
SCM, see Supply-chain management
Self-confidence, 86
Self-worth, 6
Selling incremental barrels, 14
Semi-commodity(ies), 1
business, 33
companies, 38
sales representatives, 37
Service
-oriented activities, 4
transaction costs, 103
Shared-decision style, 145
Share the pain approach, 95
Shell Oil, 130, 138
SIC codes, see U.S. Department of Labor
Standard Industry Classification
codes
Silicon Valley, 27
Six Sigma, 76, 141
Socialists, 13
Spare parts, as form of inventory, 80
Specialty packaging, 50, 103
Speed-of-delivery, 40
Staffing for success, 8199
compensation and reviews, 9092
firing and personnel layoffs, 9396
plant and laboratory non-professional
personnel, 9799
promotions, 9293
recruiting, 8187
education, 8384
employment agreements, 8687
experience, 8485
personality traits, 8586
references, 86
retention, 97
training, 8890
continuing education, 8990
job enrichment and rotation, 8889
using temporary and other nonemployee personnel, 9697
Stepchild company, 124
Stockholders
Stock market, 120
Stretch goals, 11
Style, shared-decision, 145
Styrene acrylonitrile (SAN), 34
158
Sumitomo Chemical, 131

Summary, 145146
Super distributor, 121
Supplier
customers on loan from, 25
relationships, 23, 26
Supply-chain management (SCM), 21, 77
Tools for management, 101114

benchmarks for allocation of costs,
107110
compounder, 108109
distributor, 109
machinery manufacturer, 110
processor, 110
business analysis, 101107
assigning resources, 106107
current relative profitability,
102104
relative profitability potential,
104106
measuring results, 111114
achievements vs. planned goals,
111
competitive rankings and analyses,
113114
customer satisfaction, 112113
financial statements and stock
valuation, 111112
Total Quality Management (TQM), 76
Toyota, 47
TPE compounds, see Thermoplastic
elastomer (TPE) compounds
TPUs, see Thermoplastic high
performance grades
TQM, see Total Quality Management
Trade
associations, 114
secret, 23, 41
Troubleshooting system, automated
telephone, 26
Trucking, contracted out, 96
Trustworthy relationships, importance of,
59
Tuition reimbursement, 89
Turnover, reasons for, 85
T
Tax-sheltered earnings, 140
Team spirit, 97
Technical marketing, 74
Technologies and markets, business
operation shaped by, 3351
markets, 4251
automotive, 4647
construction, 4546
consumer goods, 4950
electrical/electronic, 4748
industrial components and semifinished shapes, 50
other, 5051
packaging, 4445
technologies, 3342
materials, 3339
patents, trade secrets, and licensing,
4041
processing equipment, 3940
regulatory and environmental
issues, 4142
Technology
access to, 117
constant evolution of, 89
critical elements of, 18
cultures, 58
integration of marketing and, 73
patented, 136
Teflon, 135
Temporary personnel, stereotype, 96
Thermoforming, 28
Thermoplastic(s), 33
elastomer (TPE) compounds, 26
high performance grades (TPUs), 34
Thermosetting materials, recycling of, 42
Thin-walled packaging containers, 143
Timeliness, 59
Todays Breadwinner, 104, 105, 106
Tomorrows Breadwinner, 104, 105, 106
U
UL, see Underwriters Laboratories
Underwriters Laboratories (UL), 45
Unions, 98, 99
Uniroyal Chemical, 30
Universities, cooperative programs, 84
Urgency, 59
USDA, see U.S. Department of Agriculture
159
Index
U.S. Department of Agriculture (USDA),

45
U.S. Department of Labor Standard
Industry Classification (SIC)
codes, 43
U.S. Government, doing business with,
51
Us-vs.-them mentality, 91
Vertical sector acquisitions, 118

Victrex, 118, 132
Vision, 70
Vorstand, 67
W
Wacker Chemie, 131
Whistleblowers, 65
V
Value pricing, 145
Vendors
competitors, 113
Verbund, 130
Y
Yesterdays Breadwinner, 104, 105, 106
Y2K problem, 47

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Strategic Management

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Library of Congress Cataloging-in-Publication Data

Visit the CRC Press LLC Web site at www.crcpress.com

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This book is dedicated to the Avisun R&D management team of

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The Society of Plastics Engineers is pleased to sponsor Strategic Management

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Strategic Management for the Plastics Industry

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Strategic Management for the Plastics Industry

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I wish to acknowledge the help of many people who inspired my thinking,

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About the Author

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Strategic Management for the Plastics Industry

distribution business in 2000 and transferred the consulting business to another

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Foundations of the Industrys Segments ................................. 17

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Strategic Management for the Plastics Industry

2.5 Equipment, Additives, and Other........................................... 29

Technologies and Markets Shape How a Business Is Run... 33

Company Culture and Organization ......................................... 53

Managing for Success ................................................................... 69

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5.2 Managing and Integrating Functions...................................... 71

Staffing for Success ....................................................................... 81

Tools for Management ............................................................... 101

The Role of Acquisitions, Joint Ventures,

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Access to Technology............................................................ 117

Case Studies .................................................................................. 127

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10 Summary ....................................................................................... 145

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Strategic Management for the Plastics Industry

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of 100. It is critical to distinguish between assumptions based on anecdotal

1.2 Management as a Career

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Strategic Management for the Plastics Industry

A manager also needs to maintain a healthy family life, as well as make

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point by point, without responding to personal attacks in kind. The community

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Strategic Management for the Plastics Industry

A successful career as a manager can and should bring financial rewards,

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1.3 Six Things Management Must Do

Lets examine these guiding principles in more detail.

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Strategic Management for the Plastics Industry

1.3.1 Organize the Business to Meet Market and Customer Needs

1.3.2 Recognize and Manage Change

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factors, such as the emergence or disappearance of competition, certain

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