A refined business Featured

7:00pm EDT November 28, 2005
When Jim O’Brien took over Ashland Inc. in late 2002, he was faced with a falling stock price, a weak energy market and an organization in need of a serious makeover.

O’Brien, chairman and CEO, launched a series of process changes that transformed Ashland into a more unified, more efficient organization.

Ashland Inc. began its life in 1924 as a small oil refinery. Eighty years later, the company turned its refining skills inward.

The first major change O’Brien initiated was in Ashland’s operating structure. Where the organization had been acting as simply a holding company, O’Brien thought it would work better as an operating company. So he divided it into two sectors — chemicals and transportation construction — and shifted his corporate employees from being overseers to becoming active managers.

“We ... broke down the organization away from being a holding company where we had a lot of people in corporate, a lot of oversight,” says O’Brien, “And we got more people involved with the day-to-day business. [We] moved resources into the various operating divisions so people had a chance to learn the business, understand the strategy more clearly and more directly impact the operations, as opposed to having a lot of oversight.”

After that, the real work began.

Ashland appointed two operating committees, one for the chemical sector and one for the transportation construction sector.

“We have the key operating people for each sector, whether it be chemicals or construction, with the key resource people,” O’Brien says. “We meet once a month, and the agenda is centered around operating issues and alignment issues and trying to get the business more focused and the resources more focused.”

Once the operating committees were in place, the company turned its focus to implementing new processes, procedures and strategies to make Ashland leaner, faster and overall better.

Process changes
Both the transportation construction and the chemical sector needed to establish a single, central process for decision-making that each part of the company within the sector could follow.

“We’re working very hard on a new business model to get the organization better focused around having a single operating methodology around going to market,” says O’Brien. “Before, it was run sort of independently through the various operating heads, at what they call the division level, which is like several counties or parts of states. So we worked on getting the bidding right, more of a unified way of approaching the business.”

Ashland did this through a process-centering initiative.

Says O’Brien: “What process centering is, is getting the organization to be aligned on how do you do things. And we use best practices from both inside and outside of our company to determine what that methodology is, and then we teach and train our people on that. And then we put metrics and measures against that, and we use a balanced scorecard to monitor that to determine where we’re making progress and where we’re not so we know where to focus and where to ask the right questions.”

Take customer service, for example. Through process centering, the company established a single methodology and a single plan of action for consolidation and implementation of new technology.

Where previously Ashland had 23 customer service operations in Europe, eight in Canada and 16 in the United States, process centering has helped consolidate these centers to seven in Europe, two in Canada and an expected three to four in the United States.

Not only is the number of customer service centers dropping, but the operations for each are becoming standardized with the launch of GlobalOne, an initiative that puts all information systems on a single technology platform.

“We’re going to a single SAP platform to run our information services,” says O’Brien. “So that gives us the ability now to run each office in the same manner. Inside that office you may have customer service people that are focused on chemicals or distribution or Valvoline (an Ashland-owned brand), and they can all be managed by the same person. Ultimately, what this will allow us to do is migrate our customer service so we can have a single customer service person take orders for all the various divisions. And we’ll gain additional efficiency that way.

“The first step was getting the GlobalOne set up, and SAP is going to be the platform that we use, and process centering was the methodology that we used to make those decisions and to line up the process.”

That process-centering initiative is paying off.

“All these tools that we brought forward have been used over the last three years and are now starting to create real, tangible changes in the company,” O’Brien says. “People are responsible for those changes and they make the decisions as process owners versus just having various line management making decisions. We still have extensive discussion with line managers, but the process owner has the responsibility to change the process, run the process, modify the process. That’s a big difference from how we ran the company before.”

The road to market
In addition to process centering, Ashland has instituted a new solutions process to get more innovative products to market faster.

“In the past, you would come up with an idea and it would be nurtured by somebody that was enamored by it, and it could live a very long time and be under-resourced for a very long time, and it would ultimately just waste time and money,” says O’Brien.

Now, with the new solutions process, the company has stage gates in place to evaluate each new idea.

“Some person is going to champion [the idea], but at the same time, we need the company to understand what are the metrics around this opportunity and have it resourced properly, have enough stage gates so you monitor it and measure it and decisions are being made against it with senior leadership,” he says.

“After it goes through a stage gate, they have to do one of two things: Either re-establish its budget and put another timeline on it and fund it, which is a conscious decision, or kill it. It just can’t be rolled over without some commitment by a senior management team that understands what it is they’re trying to accomplish, what are the goals and objectives, and whether those are going to be met or not. So, funding is something that happens through cycles, and it isn’t automatic.”

According to O’Brien, the new solutions process has allowed the company to focus on funding the projects that really matter and that have a strong chance in the market.

“That’s the biggest win — you can take a limited resource, which is people’s time and energy and money, and it helps you make decisions around that and not waste time on things that won’t make it. [The process] makes everything faster and more efficient, and when something does make it to the other end ... it probably has the opportunity to compete and actually be something that will make a difference to our customers.”

But in order for new products to make a difference to customers, customers have to know they exist. That’s where sales comes in. While Ashland’s sales teams were working hard, the company realized that its sales force wasn’t taking advantage of product and client parallels.

“Before, we’d have people calling in on the major suppliers that we would sell into and we would not have a unified approach to how we would solve problems,” says O’Brien. “Everybody had their own objectives, their own responsibility. But we have a whole array of products where we share the customer base, [so now we] find out where we have intersection with customers and make sure that when we call on that customer that we bring the full opportunity to that customer that Ashland can bring.”

Ashland promotes this comprehensive sales approach between the chemical and transportation construction sales forces by encouraging communication.

“We have people inside certain cities that meet on a periodic basis to exchange information, and we encourage that through their management,” he says. “It’s basically knowing each other in your market and having a forum to which exchange ideas. [Salespeople] get rewarded for that, from the standpoint that it’s very visible and they’re viewed as a more valuable asset for Ashland.

“They don’t get credit financially, but they certainly get a lot of attention when they do something like this.”

Aggregate opportunities
While many of the new initiatives were applied companywide, the transportation construction sector needed to make individual changes to its bidding process.

Previously, the company set a bidding price by adding up the costs of all of the individual materials to reach a single sum, then marking up that sum to a reasonable bidding price.

Then the sector heads looked at their competition to see what it was doing.

“What we found was that the businesses that were more successful throughout the whole Southern United States and Central West [were different in] how they handle the materials,” he says.

The secret was to stop marking up the lump-sum compilation of material costs and begin treating each material as an individual piece. Today, the transportation construction reaches job bids by looking at the costs involved in securing individual materials, such as asphalt, then marking up the individual materials.

Then, the individual marked-up product prices are combined to create a whole, and the bid is based on that figure. O’Brien refers to this as the opportunity of the aggregate.

“In parts of our company, we were using the materials to subsidize the opportunity to get a construction job and they would be making either insufficient margin or no margin at all,” he says “We were wasting the opportunity of the aggregate.”

This new bidding process has allowed the sector to gain more consistent, and thus more predictable margins.

Together, these initiatives — process-centering, cross-divisional sales, a new solutions process and an improved bidding process — have created a new Ashland, one that is more unified, more efficient and more bottom-line friendly. And investors have taken notice. When O’Brien took over, the company’s stock was trading at less than $30 a share. In late 2005, it was in the mid-$50s range.

“From my point of view, (the initiatives have) brought more focus to bear on the customer — trying to figure out what they need,” O’Brien says. “But understand that it has to be done under an organizationally efficient type of platform. So we have to be organizationally efficient and operationally efficient to get that done. And I think that balance is brought to bear where we understand what the outcome is that we need, so how can we do that in a manner that is at the lowest possible cost.

“We can have a balanced approach, have our materials priced at the right price and meet the delivery requirements and do that also at a low cost so we can make the highest margin. That’s a win for both the customer and for Ashland.”

HOW TO REACH: Ashland Inc., www.ashland.com or (859) 357-7777