Science Driven By the Market
CEO Patrick Thomas Takes a New Approach to Innovation at BMS
When new company chieftains say they want to be a catalyst for change, many listeners brush it off as a tired cliché. Patrick Thomas is proof that it needn't be. Stepping into his new role as chairman and CEO of Bayer MaterialScience (BMS) in 2007, the then 49-year-old Englishman who previously had led the polyurethanes businesses of ICI and Huntsman in the UK and Belgium quickly went to work holding the old German company's cherished traditions and practices up to the light for scrutiny while contemplating new business models.
After six years in the job, many chief executives might be tempted to declare "Mission Accomplished" and fall back into a more comfortable operating mode. This thought would not occur naturally to Patrick Thomas. The Portsmouth native and Oxford graduate who calls himself "an engineer by birth and by training" is still far from finished reshaping the polymer producer's approach to innovation and marketing -- two concepts that in his mind go hand in hand.
Having scarcely paused to catch his breath since arriving in Leverkusen, Thomas blogs relentlessly, sparking dialog throughout the Bayer worldwide social media community. Covering topics ranging from finance to sustainability and points in between, his community, simply called "Patrick" has 14,000 followers -- the most in the company. "It's an effective way of communicating," he says while sitting in his office and chatting with CHEManager Europe's Dede Williams. Since mid-2011, Thomas has also dedicated a portion of his seemingly boundless energy to another "interesting job" as president of the European industry association Plastics Europe (until June 2014).
Sipping Diet Coke from a polycarbonate glass while scrolling through his laptop to find a video of a high tech application he wants to show, Thomas reflects on the gentle cultural metamorphosis at Bayer MaterialScience over the past half decade. "You cannot radically change the culture of a 150-year-old company," he remarks. "What we've basically done is to take Bayer's technical dreams and push them out into reality."
At BMS, polycarbonate, polyurethanes and their production chains, along with coatings raw materials, are the stuff technical dreams are made of. The €11.5 billion plastics portfolio, custom-designed when Bayer's plastics business was split between MaterialScience and spin-off Lanxess in 2005, was "put together very intelligently," the CEO says. BMS kept the two most versatile polymers, with bread and butter materials such as PA, PBS and ABS (the latter business subsequently was sold to Ineos) going to Lanxess.
"From the outset, BMS was designed as a growth business, and this is what what we have continued to do with it," says Thomas. To start with, "we have broadened the geographical basis enormously, investing heavily, for example, in China". In the past, all businesses were run from Germany. Under his aegis, headquarters of the global polycarbonate business was relocated to the People's Republic, the center of the market. One of the last to launch a major platform there, "we are now the largest foreign company, wholly owned, with a market capitalization of $3 billion. And we're also "the biggest and most cost-effective."
New processes are now often tested first in world-scale plants in China before world-scale facilities are built in Europe and the rest of the world. in this way, the company has successfully leveraged a number of innovative new technologies developed in-house, such as the gas-phase route to polyurethane feedstock TDI and the new energy-saving oxygen depolarized cathode (ODC) chlorine process.
Before making bold strategic moves, new managers often must tighten internal nuts and bolts. Several such tasks awaited Thomas at Bayer MaterialScience. Overhauling accounting procedures was an early challenge. "We had the most complicated SAP system in the world," he recalls. The world market leader for company software usually uses traffic light colors to rate internal corporate procedures. "For us they had to add a fourth color, black, for processes they couldn't interpret." Today, BMS operates with one set of processes globally. Regional differences are a thing of the past.
Another hurdle the first outsider and non-German to run the company had to surmount was reducing working capital. First, however, he had to convince the Bayer holding's chief financial officer that the targets were achievable. Over six years, Thomas and his financial team have reduced working capital by €500 million, and "we now have benchmark working capital across the entire company."
A pet project of the new chief executive was establishing strict cash discipline, which turned out not as easy a sell internally as it might have been. The reason, Thomas believes, was that "at a company like Bayer with a fabulous credit rating, it was not a natural thing to think about." But coming from a highly leveraged company like Huntsman, he found it essential. "If you manage cash well, you can manage other things well." Over the past decade, Bayer's polymers business has generated €3 billion in cash. Unlike some plastics companies, "we have been cash positive even in recession years."
A new concept Thomas's management team has introduced is the global "non-touch order," which if one day applied broadly could revolutionize buying and selling. From call-off to invoicing and cash collection, no human hand touches the process. For the bulk of the portfolio, total automation is not yet in sight. However, in the US, where the system was developed and first launched, around 60% of customers who regularly order the same products, without price negotiation -- polyurethane systems, for example -- are now using it.
"We had the process designed in the US, because Americans are usually more efficient," says Thomas. Europeans might have made it too complex." Around 20-30% of European and Asian customers have now adapted the system, 12% in Latin America. Besides simplifying and speeding orders, the system is cheaper for the company as well as the customers, he says. The bonanza in Asia was especially tangible. "When we went live, the auditors reduced our bill by several million dollars because we made their job easier. The money saved is being invested in R&D."
As might be expected, BMS' approach to R&D under its English chief executive diverges from that traditionally embraced by the German chemical and plastics industry. "Our mantra," he says, is "more innovation, less administration. Innovation is not just science and technology. It's also about how you do business." Applying one of his cherished concepts, industrial marketing, to innovation at BMS three years ago was a sea change and a learning process for most employees.
"At Bayer, we are very good at invention," Thomas asserts. While manufacturers' traditional approach to invention is "to develop a product and see if there's a market, a better method, he says, is to go to the marketplace to find creative impulses that match the portfolio and business strategy. Over the past three years, the company has invested considerable sums to develop an "outside in perspective, which its chief calls a "real industrial marketing approach."
This strategy is an integral part of BMS' cooperation with Japanese professor Yoshiyuki Sankai, a renowned expert in exoskeletal robotic systems. The company is contributing an extremely lightweight, super strong reinforced polycarbonate material to Sankai's much-touted Hybrid Assisted Limbs (HAL) therapeutic program, designed to help people with neurological injuries regain use of their limbs.
Due to the bulky encased electronics, the polycarbonate skin is not much of a fashion statement, especially when worn under clothing. "Not everyone wants to look like Iron Man or the robot HAL in Stanley Kubrick's film 2001, A Space Odyssey," Thomas muses. To find a more attractive solution, BMS, together with Sankai and his venture capital firm Cyberdyne, launched a design competition. The invitation to tender went out as an iPad app, and design institutes paid to participate. A German contestant emerged the winner.
From the chief executive's viewpoint, the outside-in strategy is the biggest cultural change to take place within BMS under his leadership. It is also being applied to promotion of the Bayer EcoCommercial Building, a sustainable structure that draws energy for heating, ventilation and lighting from renewable sources, employs an insulation concept based on BMS' polyurethane raw materials and is used as a showcase for the company's technological competence.
Some of our competitors simply sell building products, but we take a more holistic view, Thomas says. "If we're asked if we have a certain product, we always say yes." The company has built up a network of more than 90 external partners that are paying to participate in the EcoCommercial building. One of them will be able to provide a solution. "In the end, we all benefit," says the CEO. "It's the Science for a Better Life" principle. Some of the partners are academic, such as the technical university at Aachen, Germany, which helped developed the catalyst for BMS' Dream Reaction route to producing polyols from waste CO2.
The outside-in strategy is one that Thomas intends to anchor even more strongly at Bayer MaterialScience in future. "If you watch us over the next few years," he says, "you will see us recruiting more and more people you would recognize as professional marketeers rather than just scientists. About 70% of what scientists do should be driven by the market."