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As spring deepened into summer in verdant northern California, Mark Klopp found himself in an unexpected position: A host of prominent Silicon Valley venture-capital firms were wooing him. Klopp had absolutely no high-tech background. The 38-year-old had worked his entire career for Eastman Chemical, an old-line chemical company that wasn’t even a stand-alone business until 1994—it previously was buried deep inside the photography giant Eastman Kodak. Most of that career had been spent at Eastman Chemical’s headquarters in the Appalachians, about as far psychologically from Silicon Valley as a place can be. But inside Klopp’s head was extremely valuable knowledge: the understanding of how large, lumbering companies can invest in or create Internet ventures that can compete with agile start-ups. An earnest man, Klopp responded to the venture capitalists’ flattery by requesting assistance from Eastman headquarters to remove what he calls the "distractions" of the region’s many lucrative job offers. Not the usual response. But Klopp had come to Silicon Valley in late 1999 only because he wanted to absorb the culture of start-up companies. And Eastman was proving to be surprisingly quick about trying the ideas that Klopp, together with some others, was pushing. Even though Eastman hadn’t even decided to attempt an e-commerce strategy until May 1999 and hadn’t rolled out its first Web "storefront," www.eastman.com, until July 1999, the company made rapid investments in five Internet start-ups. Among them: two on-line exchanges and a systems-integration business, which appear to have promising futures. With support from Klopp’s boss, Chief Information Officer Roger Mowen, back in bituminous-coal country, Eastman also launched three ventures of its own, including one that Eastman says will be the first big on-line market for chemicals in Asia. Eastman has developed plans for two other ventures. To build what it considers an array of choices, Eastman, which has annual revenue of more than $4.5 billion, put up less than $20 million. Yet it found itself in the middle of Silicon Valley’s ferment, its all-important "deal flow," and its smart money. Eastman may earn significant profit on the investments—it is too early to tell. But even if the ventures aren’t spectacular investments, Eastman is learning how to use the Internet to make itself more efficient and is positioning itself, at minimal expense, to be on the cutting edge of e-commerce ideas. "Eastman began doing things right from the get-go," says Heidi Mason, director of the Bell-Mason Group, which is a consultant for start-ups. Joseph Beaulieu, investment analyst at mutual-fund-research firm Morningstar, says: "There are a handful of bricks-and-mortar companies out there that have made a compelling push into e-commerce. Eastman...is in that group." Mason, who is on an advisory board at Eastman, says that if you were able to take an organizational stop-action film of Eastman’s many steps, you would spot a sure-footed, if frighteningly rapid, choreography for dot-com ventures. From the outset, she says, Eastman decided to build its e-commerce capabilities as "both a core competency and as a portfolio of options." She means that, while establishing Internet-related ventures was declared a strategic imperative, the company wouldn’t put all its eggs in one basket—a mistake that many companies make. Eastman also immediately grasped that it would require different skills to invest well in outside ventures than it would need to build ventures internally. Eastman understood Internet time—it was "quick to learn and quick to reorient," Mason says. Finally, Eastman, unlike many companies, realized that it needed to find partners to provide knowledge it didn’t have and to give its ventures more power in the market than Eastman could on its own. Eastman was most fortunate, she adds, in having strong leadership. By that, she mostly means Earnest W. Deavenport, widely referred to just as Earnie. Deavenport, the chairman and chief executive, was running the show when Eastman won the prestigious Malcolm Baldrige National Quality Award in 1993. A year later, he led the manufacturer of chemicals, fiber, and plastics out of Kodak. Deavenport also created an environment that produced a different, nonchemical kind of catalyst—a person like Klopp. Klopp was recalled from an overseas marketing job in June 1998 to be "assistant to the chairman and CEO." Klopp, who had been investing his own money in Internet stocks since 1991, even before the World Wide Web was developed, immediately began feeding articles on e-commerce to Deavenport and his executive team. Deavenport was a willing believer. At the time, Deavenport was president of the National Association of Manufacturers and had heard plenty from his fellow CEOs about the potential and peril of the Internet. He also knew how hard it is to gain market share in a mature industry such as chemicals—at $4.59 billion last year, Eastman’s revenue was only slightly higher than the $4.5 billion the company recorded in 1994, when it split off from Kodak. To get Eastman’s executive team thinking about the issues, Deavenport had them read Blur, by Christopher Meyer and Stan Davis. Then he called his managers into a conference room and quizzed them on the contents of the book, whose subtitle is The Speed of Change in the Connected Economy. Klopp says, "It was readily apparent who had read the book and absorbed its messages and who had not." Klopp went on to schedule a series of presentations to Eastman by Internet stars and gurus. The first was Larry Downes, co-author of Unleashing the Killer App, who gave a day-long seminar in February 1999. In March, Dell Computer’s Michael Dell arrived. Eastman executives visited at Cisco, and they quizzed the director of e-business at Dow Chemical. Deavenport’s conclusion was succinct: "Either we get on this wave and ride it, or we sit on the shore and let it crash over us." Eastman therefore moved quickly. To provide external perspective, a board of Silicon Valley veterans was established, composed of Mason, Downes, and Adrian Slywotsky, a partner with consulting firm Mercer Management and author of Value Migration. To ensure that all internal ventures were managed consistently and well, Deavenport set up a Digital Business Ventures office, consisting of a group of experienced executives, including Klopp. Deavenport didn’t simply decree that the office, alone, would do the Web thing. He started to change the entire company culture for a day when the e-business component might be its largest. First off, paper was banished. Employee-benefits information and forms were available only on-line. Deavenport stopped printing the company newspaper and put it on-line. With Deavenport’s impetus, Klopp and Fred Buehler, director of e-business, have formed a sort of Mr. Outside and Mr. Inside team. Klopp focuses on partnerships and investments in businesses that will help Eastman expand its core businesses. Buehler focuses on partnerships that will help make Eastman’s internal business practices more efficient. In the past year, Klopp and Buehler have together led Eastman to launch:
Klopp and Buehler have led Eastman to purchase equity stakes in:
Phillip Merrick, CEO at WebMethods, says Eastman has already profited from their partnership. Using what might be called "e-engineering," Eastman used WebMethods and SAP software to link its information systems to those of a customer, Albemarle, which supplies specialty chemicals for consumer products, such as cosmetics. Eastman also tied in a major supplier, Rayonier, a global supplier of timber, specialty pulps, and wood products. The companies now share inventory levels, order information, and production schedules. "Within 30 days of turning on the system, Eastman cut inventory levels by 10%," Merrick says. The companies involved also simply work together more effectively, according to Mowen, Eastman’s CIO. He says that is important, because it debunks "the notion that information technology is only good for reducing costs." What Eastman really intends to do is reorient itself around the customer using new technologies, Mowen says. The company aims to be able to do business any way the customer wants: direct; through virtual intermediaries such as third-party auctions like ChemConnect; or through such multisupplier, on-line catalogs as PlasticsNet and VerticalNet. Reinventing the business is crucial, says Erica Rugullies, an analyst at technology research firm Giga Information Group. She says this spring’s plunge by Internet stocks shows "that there is some value to traditional bricks-and-mortar companies, that they have something to offer. On the other hand, the traditional bricks-and-mortar companies must also show that they understand that the Internet is changing their business model. A few of them already got it. Now, more of them are getting it." It isn’t easy. Knowing how to figure out what customers want is hard enough. Knowing how to manage a host of ventures that could help fill those desires requires a whole new sort of gyroscope so that, even as executives get buffeted by change, they always know which end is up. Mani Subramani, assistant professor at the Carlson School of Management at the University of Minnesota, says: "You have a graybeard company trying to learn new ways....It’s almost as if you can’t go too fast....But you’ve got only a short time frame to get on top of the New Economy, and, as soon as you do, it changes again. So you’ve got to know what’s going on, and you’ve got to make changes rapidly. Once you get behind, you pay the price." Eastman seems much more concerned that it will move too slowly than too quickly. Mowen carries the unofficial title, ambassador of e-speed. "I’m on a mission to change the culture at Eastman," he declares. Mowen admits he frequently encounters the glazed eyes of managers who see e-commerce as a passing fad. "That’s okay, but we’re changing minds. We’re learning to make decisions more rapidly. And that’s very important. Because the more you delay, the more likely it is you will be passed by."
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