How Stephen Newlin changed the culture to improve performance at PolyOne

Stephen Newlin, chairman, president and CEO, PolyOne Corp.

When Stephen Newlin arrived at PolyOne Corp. more than five years ago, the biggest challenge he faced was the company’s culture.

“The morale wasn’t good, and the people didn’t seem to feel like they were winning or had a road map toward success, and the company had been in a state of decline for a long enough time that people were frustrated, and a lot of talent had left,” the chairman, president and CEO says. “The biggest challenge was trying to find a way to instill confidence and give them hope for the future and get them to believe in the future.”

He started this daunting task with a classic leadership principle.

“One of the first things you do is assess what you have and assess the situation,” Newlin says. “People tend to try to find a project that they think they have a good chance of winning and make it high profile. When you hit on that, it spreads throughout the organization, and it helps build the confidence that’s so important and lets people realize, ‘OK, we did have a common cause, we got together for it, and we feel good about it.’”

Newlin thought the case was simple. He has an engineering background, and he started in sales engineering dealing with customers, so he approaches business from a customer-centric standpoint. He was fortunate when he started that PolyOne had just done a customer satisfaction survey.

“I was pleased that we had done that, but what we hadn’t done was really acted on it, so I went through it and talked to some of the people that were around — what did you learn from this?” he says.

What he learned was they were about the same as their competition. PolyOne’s delivery rates were 81 percent, and the competition’s were between 81 and 82 percent.

“The incumbent management team at the time said, ‘Let’s not worry about this because we’re about the same as the competition,’ where I viewed it as an opportunity to differentiate,” Newlin says. “I said, ‘Listen, we can do a lot better than this. I know we can from past experience.’”

He had worked in industries somewhat similar to PolyOne, a provider of specialized polymer materials, services and solutions. At one of his previous stops, his company had an on-time delivery rate at 95 percent or above.

So he decided that in the course of the next 18 months, they were going to rise from 81 percent to 95 percent.

“If the competition wants to follow, that’s fine,” he says. “If not, we’re going to separate from them.”

He suspected that if they could spring out in front of the competition that the company would not only have better customer service and get stronger, but that people would likely feel like they make a difference and that the company is going somewhere.

He says, “It was a way to energize people, to get them to come together toward a common cause and to begin to see things differently at our company in these early phases.”

Get the right people

He started the process by assigning someone internally to be in charge of making sure PolyOne hit this mark, so every day when that person came in, that was his or her primary task. But it wasn’t an easy task. If a customer called that morning and wanted an order by the afternoon, even though it wasn’t possible to get it to the customer that quickly, PolyOne considered it a strike against the person’s score because the company wasn’t able to meet the customer’s need.

“That’s how you get things done,” Newlin says. “Our company suffered from a lack of accountability. It was something our board recognized. It was something I recognized on day one. I felt we needed a person whose job it is to make this happen, and I’m going to support them and the officers are going to support them.”

Even though only one person was tasked with making sure he or she hit this goal, the entire management team had to buy in to the strategy. While Newlin had the overall state of the company working against him when he came in, he also had some things working for him to get that crucial buy-in.

“Working for me were people that were ready to embrace change, that were tired of the declines in bonuses and not getting salary increases and not seeing the stock price appreciate and just sort of frustrated with where we were going,” he says. “They were working hard, and they weren’t seeing any real benefits, so they were eager to embrace change. … They didn’t know if what I was saying was right or not. They didn’t necessarily buy in to everything I said, but they did buy in to the concept of significant change.”

Major change and incentive aside, he worked on trying to convince them to buy in.

“If you’re selling to the customer or you’re buying or selling a business, you have to understand people’s motives because we all have things that make us tick and cause us to behave in certain ways,” he says. “Then I think you have to appeal to those motives, so you have to put things in a language that’s meaningful to them. Then you have to start with the right ingredients — the right people.”

But how can you tell who the right people are?

“You have to have people who are open-minded, who understand in business today, the rate of change is very brisk, and if you’re not prepared to move quickly, somebody’s going to run right by you,” he says. “Those things are the starting points. Then you get into talking their language and helping them understand what’s in it for them, and that doesn’t always have to be materialistic or money. It could be recognition or a sense of fulfillment or achievement, but appealing to them on a very human basis — here’s why we have to do this, here are the alternatives — and selling them.”

The right people rapidly become apparent because not everyone signed up. Newlin says he could see pretty quickly who was just nodding their head to agree and who actually had the heart for it, so he made massive changes at the management level, overturning two-thirds of the officer corps of the company. He didn’t start right away, but within six months, he started making changes.

“You try to give people a chance and sell them and motivate and inspire them, but in the end, if you can’t change the people, you have to sort of change the people, so we had to do some of both,” he says.

That continued for about a year. As people left, Newlin hired people from leading companies that bought in to what he was trying to do already. In doing so, they, in turn, cascaded that process down. Someone would come in who bought in, and about six months later, he or she would start cleaning out and augmenting his or her team to get people who bought in.

“It takes two or three years to get those players in place at the right levels in the organization,” he says. “That doesn’t mean you wait until then to make things happen, but when things really start to gel like they are for us now, and they’re harmonized, I think it’s about three years.”

Stay on task

As each quarter went by, that on-time delivery rate inched up, and after five quarters — and ahead of schedule — PolyOne reached 95 percent.

“They felt really good about getting a victory,” Newlin says. “It wasn’t a victory in terms of earnings per share, but it helped them understand that with some direction, and with a strategic plan and a focus, they could begin to do things that felt successful. It’s a small victory, but it’s not insignificant in terms of transforming the culture at the time.”

With one small victory under his belt, Newlin was beginning to think bigger. In late 2007, he did something many would deem crazy: He publicly rolled out all of PolyOne’s goals that he wanted to achieve by the end of 2012.

“It was risky, and we said, ‘Here’s what our financial objectives are, here’s what our innovation objectives are, here’s what our globalization objectives are,’ and we published them,” he says. “It might have been foolish, but it was one of the best things we ever did because it put the pressure on us. It said to the organization that I and my team will be held accountable.”

This was something that the employees needed to see. They often snickered and joked about different initiatives being the flavor of the quarter because leadership would start down a path with something, and if they didn’t see results in a quarter, they typically abandoned them.

But while the employees liked seeing this, investors weren’t as optimistic. At one point, he remembers doing this in Chicago and could see the investors shaking their heads in disbelief at how ridiculous they thought it was.

“There’s no question they were skeptical, but I just laid it out — ‘This is not going to be a cost-cutting exercise. This is going to be a specialization strategy, a differentiation strategy, and it’s going to take us time. If you’re the type of investor who wants to turn your portfolio every quarter or two, you’re not going to be happy,’” he says.

He and his team worked harder to pursue longer term investors who really understood the story and rationale behind it. Some people believed in it, and others didn’t, but he continued pushing PolyOne forward.

Demonstrate your value to customers

As PolyOne moved forward, the company was now meeting its on-time delivery rate goals, which was a great improvement to customer service, but it now needed to show the customer why they had to pay for this type of service.

“I think we used to think we were customer-oriented whenever we would drop price to keep an account, even if it meant losing money on an account,” he says. “That’s not the kind of customer you can have an ongoing relationship with. This is not the Red Cross. This is a business. This is a public company, and we’re expected by our shareholders to earn a reasonable return and profit on that.”

Oftentimes, customers would somewhat bully PolyOne by saying their competitor will give it to them at a certain price, so they need to get to that level too, or they’re gone. While before, the company often caved and lowered the price, the new PolyOne won’t.

“We usually at that point say, ‘We can’t and here’s why,’” Newlin says. “Here’s what we think we’re doing for you, and if you don’t agree with that, by all rights you should make the change.”

And if a customer decides to leave for a competitor, instead of holding a grudge against them, Newlin views it as a failure on he and his team’s part that they haven’t convinced that customer of their worth.

He needed to align with the kinds of customers who appreciated what they were doing and would pay them for the service and the uniqueness they provided.

They developed a proprietary tool for their sales force that would map the competitor’s program and cost with PolyOne’s by looking at scrap rate, production, electricity costs, speed the machines could run, cost savings for the organization, and time it takes to change over the machine from one to another. By laying out this information, it was easier to show why the premium the customer paid to PolyOne made sense because it would, in fact, save it more in the long run if the company looked at all these other factors.

“We have to be competitive, and we understand that, but at the same time, we can get a premium for the great quality, service and differentiation we have,” Newlin says. “We’re investing almost 3 percent of sales in R&D — that’s the highest we know of in our industry and it’s pretty substantial.”

Showing customers the worth PolyOne brings to the table has been helpful in rationalizing the company’s commitment to not give away its product for prices that aren’t fair anymore.

“We want our customers to use our service, that’s what we’re all about, but they have to pay us a fair price,” he says. “They can’t pay us a price they pay someone else that doesn’t provide that and expect it to all work out.”

Drive innovation

While Newlin has been able to take a stronger stance with customers and demonstrate the company’s worth with data, that’s not enough to continue driving PolyOne forward.

“You can’t keep having the old, antiquated, me-too products and expect to get any kind of a premium,” he says.

Because of that, Newlin wanted to focus on innovation. One of the goals he set in those to achieve by 2012 was a vitality index — what percentage of products sold were five years old or newer. In 2006, PolyOne had about 11 percent of its products in that category with a goal of getting that number between 35 and 40 percent.

One way innovation gets emphasized throughout the organization is through the company’s innovation centers. At these centers, customers can come in and view innovative products that have been made by other companies using PolyOne’s products and technologies. Some examples include the soft plastic grips on some razors and tools, metallic-looking plastic parts for some popular car brands, certain colored or scented products for personal hygiene products and BPA-free materials used for sippy cups and water bottles. It helps them see the possibilities instead of just looking at the product strictly by itself in its original form and not for its possibilities. They can also test ideas, and PolyOne provides office space for those who are in town for a few days who need a place to work and collaborate.

Another way Newlin drove innovation was by inspiring his employees to think about it. Earlier this year, he challenged employees to submit innovative ways to use PolyOne’s plastics know-how, formulating know-how or any other expertise customers tell them about. The top three would be rewarded, and anybody could make suggestions.

He thought he and the team would get 150 to 200 ideas, but they received 657. His head of marketing and head of R&D pulled some all-nighters going through all of them, and they determined that 165 of those were viable. The top idea came from an HR person locally, and the second- and third-place ideas came from employees in China.

To reward employees, everyone who submitted an idea got a small reward, and then the top three winners received innovative prizes, made by innovative companies, to reward their innovative ideas. The top prize was a Samsung 3-D television. The other two prizes were an Apple iPad and a Sony Reader.

The top three ideas are in the process of being patented and implemented right now, and the other 162 ideas were divided up.

“They’re not sitting around,” Newlin says. “The businesses have been prioritizing them. One business got 30 of these, and they can’t possibly work on 30 at once, so they’re saying, ‘We’ll do this one first, or we might outsource that one if it’s not a proprietary.’”

It’s created a new problem, but its one he’d much rather have than the polar opposite.

He says that’s how you get the process started — taking what your company knows how to do and then finding exciting and meaningful uses for it for your customers. Then you have to take it a step further and start anticipating the future by asking them questions to understand their needs and try to recognize potential pain points they may not realize they have or will have.

“At the speed at which business flies today, you can’t wait until your customer discovers they have a need,” he says. “You get a lot of that, but you have to get out past them and look ahead and anticipate emerging trends, regulatory driven changes that are going to impact your customers, things that are going to influence their outcomes, and you have to start working on that generation in advance of when the customer even realizes they need it. Then, the moment that it’s there or ahead of time when you develop this, you can take it to them, and they can be the first mover and get a big gain in the market.”

He’s extremely pleased with the progress made — the 2010 vitality index was at 40 percent. He’s also excited to see how much more innovation comes out of the company in the next year as a result of all of these ideas slowly getting implemented.

“We’re not Apple, we’re not Google, but we’re not the old PolyOne either,” he says. “In the context of our industry, we’re very forward-looking.”

With a little over a year left to achieve the goals laid out in 2007, Newlin is confident in PolyOne’s ability to reach those, because he sees a company that has changed tremendously since he took over.

“It’s really a lot of fun now,” he says. “The early years were very challenging. They were very frustrating. I felt like you had to do a lot of work that wouldn’t even be visible to employees or shareholders, but you knew you had to do it, and some of it was difficult work.”

The original culture has long since disappeared, and he now has an engaged culture that is poised to grow the $2.6 billion company.

“Now we’re having a lot of fun at PolyOne,” Newlin says. “The attitude of our employees is very different. It’s a fun place to work, and we work hard. There’s a sense of responsibility, and there’s a great sense of commitment, but people are having fun and getting a lot of rewards and a lot bigger sense of fulfillment than they have in the history of the PolyOne organization. … People feel good about our company, they feel good about where we’re going, and they feel like we have a lot of potential and a lot of room to grow as we rev this thing up.”

How to reach: PolyOne Corp., (440) 930-1000 or