Case Examples - Eastman Chemical

Eastman Chemical Adds Venturing to the Mix

At first glance, Eastman Chemical Corporation seemed like an unlikely candidate to blaze a pioneering new trail in corporate venturing. More than twenty-five hundred miles away from Silicon Valley by road and culturally a world apart, Eastman Chemical hadn't even moved forward with an e-commerce strategy or opened a dot-com storefront until 1999.

But CEO Earnest Deavenport understood the need for his company to create a venturing program. From his corporate perch in the eastern Tennessee town of Kingsport, Deavenport could see the potential of electronic commerce. And he believed that innovating would lead to growth, which was crucial to a company struggling to increase market share in a mature industry. At $4.59 billion, Eastman's revenue in 1999 was just slightly higher than it had been when it split off from Eastman Kodak five years earlier.

But Deavenport also understood that if Eastman was to venture successfully, he had to create a special environment in which the normal rules that had always served Eastman well would no longer apply. That environment would be alien to Eastman's culture, traditional practices, and many of its own vested interests. Creating it without dooming it to failure or fatally undermining the company's traditional strengths would require groundwork, planning, dexterity, and the right mix of people. The ventures group would need its own processes, allowing it to import the art that is essential to venturing and build the science that must go with it.

It's worth looking at the initial steps Eastman took as a brief primer to the way a company transforms itself:

	Nudge corporate thinking. Deavenport laid the cornerstone by talking up his executive team, recommending books for them to read, and holding in-house seminars featuring outside experts on corporate investing and the Internet. He sought to determine which members of his senior executive team were paying attention to the new approach, tossing questions at them and keeping track of who seemed to get it and who didn't.
	Put in place people with commitment to the new venture mission, and give them the scope to isolate it from corporate traditions that could threaten it. One of Eastman's executives moved away from the corporate shadow in Kingsport and relocated to Silicon Valley, where he could be closer to new ventures and new thinking. He set up a venture business office, creating its own governance structure for himself and his employees.
	Spread Eastman's bets and build a portfolio of options. Many in the business world see corporate venturing as one thing and one thing only-undertaking new ventures and running them within the company. That's actually only a fraction of what corporate venturing needs to be. Deavenport recognized that Eastman could not succeed in the venturing game through one or two big investments, or by rushing into a solo start-up. The company was prepared to invest $20 million in its corporate venture capital program, and that meant it had to diversify to create a range of options and minimize risk. Incubating a new business from within the company or setting up a separate wholly owned enterprise could be only one part of Eastman's venturing program. What the company needed was a diverse portfolio-including venture investments, joint ventures, and industry partnerships.
	Ensure that the investment portfolio is strategically relevant to the company's core business. Eastman had to build adjacent businesses that would be related to its proven strengths and experience, making the company more efficient and accelerating its core capabilities. Every investment involved a technology with the potential to improve the way Eastman did business. In that way, venture investments, joint ventures, incubations, and all other elements of the program would provide the company with additional strategic leverage, over and above their impact on return on investment.

Eastman's results reflected its thought-out approach. Through its new venture organization, the company soon began creating a hothouse of new projects. The company made equity investments in related enterprises such as exchanges, service providers, business process applications, and software infrastructure.

As well as equity investments, Eastman entered a joint venture to establish Asia's first large-scale online chemical exchange, and a partnership in an online exchange targeted at the $64 billion paint and coatings industry. And it launched a company that manages logistics for chemical buyers and sellers.

In the midst of these new ventures was Eastman's greatest gamble: its investment in webMethods, a fledgling start-up company that was trying to persuade corporations to get behind its XML software as a standard for integrating communication with customers and tracking orders and shipments. This integration software enables supply chain transparency, giving Eastman a rare bird's eye view of its trading partners' inventories-how much of any chemical a customer or supplier has in stock-facilitating pinpoint accuracy in inventory decisions.

In an industry where many suppliers still didn't use fax machines, introducing an online exchange required a leap of faith. But what helped push Eastman management toward webMethods was the realization that they might be creating not only an efficient, cost-saving customer interface, but possibly a new standard that they could license to every company in the chemical industry.

In the first two years after launching its corporate venture process, Eastman invested in about twenty ventures. Some, like webMethods, revolutionized the company's relationship with customers. Others revealed basic flaws at an early stage. But all the investments express common themes: a focus on enhancing tools and techniques for better delivery of the company's core business, developing new techniques for doing the things it does faster, better and cheaper. In fact, eighteen of the first twenty-two investments had an established strategic partnership and/or customer relationship/usage.

Eastman Ventures URL:
http://www.eastmanventures.com