Harvard Case - Dow Chemical: Innovating for Sustainability
"Dow Chemical: Innovating for Sustainability" Harvard business case study is written by Robert G. Eccles, George Serafeim, Shelley Xin Li. It deals with the challenges in the field of Accounting. The case study is 26 page(s) long and it was first published on : Jan 25, 2012
At Fern Fort University, we recommend Dow Chemical implement a comprehensive strategy focused on sustainable innovation to drive long-term growth and enhance shareholder value. This strategy should involve a multi-pronged approach encompassing operational efficiency, product development, and market expansion, all while prioritizing environmental and social responsibility.
2. Background
Dow Chemical, a global leader in the chemical industry, faces increasing pressure to address environmental concerns and meet evolving customer demands for sustainable products. The case study highlights Dow's efforts to develop and commercialize innovative, sustainable solutions, including renewable energy sources and eco-friendly materials. However, the company grapples with challenges in balancing profitability with sustainability initiatives, navigating complex regulatory landscapes, and fostering a culture of innovation across its diverse global operations.
The main protagonists in this case study are:
- Andrew Liveris, CEO of Dow Chemical, who champions the company's commitment to sustainability and innovation.
- The Dow Sustainability Council, tasked with developing and implementing sustainable practices across the company.
- Dow's research and development teams, responsible for creating innovative and sustainable products.
- Dow's customers, who increasingly demand sustainable solutions and hold the company accountable for its environmental impact.
3. Analysis of the Case Study
We can analyze Dow's situation using a framework that combines financial, operational, and strategic perspectives:
Financial:
- Financial Performance Measurement: Dow needs to develop a comprehensive framework for measuring the financial impact of its sustainability initiatives. This framework should go beyond traditional financial metrics and incorporate sustainability accounting principles to capture the value generated by environmental and social performance.
- Cost Accounting: Dow needs to implement activity-based costing to accurately allocate costs associated with its sustainability initiatives. This will enable the company to identify areas where cost savings can be achieved and to make informed decisions about investments in sustainable technologies.
- Financial Analysis: Dow should conduct thorough financial analysis to assess the profitability of its sustainable product lines and identify opportunities for growth. This analysis should consider factors such as pricing strategy, cost structure, and market demand.
Operational:
- Manufacturing Processes: Dow should optimize its manufacturing processes to reduce waste, minimize energy consumption, and improve resource efficiency. This can be achieved through lean manufacturing techniques, process optimization, and investment in advanced technologies.
- Asset Management: Dow should implement a robust asset management strategy to ensure that its assets are utilized efficiently and contribute to its sustainability goals. This includes optimizing asset utilization, extending asset life, and investing in energy-efficient equipment.
- Change Management: Dow needs to effectively manage the organizational change associated with its sustainability initiatives. This involves communicating the vision clearly, providing training and support to employees, and fostering a culture of continuous improvement.
Strategic:
- Corporate Strategy: Dow's corporate strategy should be aligned with its sustainability goals. This means integrating sustainability into all aspects of the business, from product development to supply chain management.
- Growth Strategy: Dow should develop a growth strategy that leverages its sustainability expertise to expand into new markets and create new revenue streams. This could involve developing innovative products for emerging markets or partnering with other companies to create sustainable solutions.
- Innovation: Dow needs to invest in research and development to create innovative and sustainable products and processes. This requires a culture of innovation, collaboration, and risk-taking.
4. Recommendations
Dow should implement the following recommendations to achieve its sustainability goals and drive long-term growth:
- Develop a Comprehensive Sustainability Strategy: This strategy should be clearly articulated, aligned with the company's overall business strategy, and supported by a robust governance structure.
- Invest in Sustainable Innovation: Dow should allocate resources to research and development of innovative products and processes that address environmental and social challenges. This includes exploring renewable energy sources, developing eco-friendly materials, and optimizing existing products for sustainability.
- Optimize Operations for Sustainability: Dow should implement operational improvements to reduce its environmental footprint and enhance resource efficiency. This includes implementing lean manufacturing techniques, investing in energy-efficient equipment, and optimizing asset utilization.
- Foster a Culture of Sustainability: Dow should create a culture that values sustainability and encourages employees to contribute to the company's environmental and social goals. This can be achieved through employee training, performance incentives, and recognition programs.
- Engage with Stakeholders: Dow should actively engage with its stakeholders, including customers, suppliers, investors, and communities, to build trust and transparency around its sustainability efforts. This includes providing regular reports on its progress, responding to stakeholder concerns, and actively seeking feedback.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Dow's core competencies in chemistry and innovation are well-suited for developing sustainable solutions. The recommendations align with the company's mission to 'deliver what matters most' by creating value for its customers, employees, and society.
- External Customers and Internal Clients: The recommendations address the growing demand for sustainable products from customers and the need for a more sustainable approach within Dow's own operations.
- Competitors: The recommendations position Dow to stay ahead of its competitors by embracing sustainability as a core differentiator.
- Attractiveness ' Quantitative Measures: The recommendations are expected to generate both financial and non-financial returns. While quantifying the impact of sustainability initiatives can be challenging, Dow can use tools like activity-based costing, financial statement analysis, and sustainability accounting to assess the financial impact of its investments.
6. Conclusion
By implementing these recommendations, Dow can position itself as a leader in sustainable innovation, enhance its brand reputation, attract and retain talent, and ultimately create long-term value for its shareholders. The company's commitment to sustainability will not only benefit the environment but also drive its business growth and success in an increasingly competitive global market.
7. Discussion
Other alternatives not selected include:
- Focusing solely on cost reduction: While cost reduction is important, it should not come at the expense of sustainability. Dow needs to find ways to reduce costs while also improving its environmental and social performance.
- Ignoring the demands of stakeholders: Dow needs to engage with its stakeholders and address their concerns about sustainability. Ignoring these concerns could damage the company's reputation and lead to negative consequences.
Key assumptions of our recommendations include:
- Customer demand for sustainable products will continue to grow.
- Technological advancements will continue to enable the development of more sustainable products and processes.
- Dow's commitment to sustainability will be supported by its leadership and employees.
8. Next Steps
Dow should implement its sustainability strategy in a phased approach, starting with:
- Developing a comprehensive sustainability strategy and governance structure.
- Piloting sustainable innovation projects in key areas.
- Implementing operational improvements to reduce environmental impact.
- Communicating its sustainability goals and progress to stakeholders.
These steps should be completed within the next 12 months, with ongoing monitoring and adjustments based on performance and stakeholder feedback.
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Case Description
Dow Chemical is one of the few major American industrial corporations that was founded in the late 19th century that is still in existence. From its origins producing bromine out of the brine underneath Midland, Michigan, the company has evolved from a diversified commodity chemical company to an advanced materials company whose products and services can make its clients more sustainable. During the 1960s and 1970s the company received a series of external shocks in the form of negative public opinion for some of its activities. These challenged the company's perception as being a good company and made it realize it needed to more proactively seek outside perspectives on how the company was viewed and what it should do. This led to the formation of the Corporate Environmental Advisory Council in 1992 which was renamed the Sustainability External Advisory Council (SEAC) in 2008. With substantial input from the SEAC, the company set two ambitious sets of ten-year goals: 1996-2005 and 2006-2015 and was largely successful in meeting them or on the way to doing so. In 2011, Neil Hawkins, Vice President of Sustainability and EH&S (Environmental, Health and safety) is trying to decide what the content and format of the next ten-year goals should be to ensure the company's viability on its 200th birthday. Should they be incremental goals like the ones for 2005 or ambitious stretch targets like the ones for 2015? Or should they be broad statements of principles that encourage innovating for sustainability throughout the company? A further challenge facing the company that it was rapidly globalizing with a large portion of its workforce outside its Midland, Michigan headquarters, making it even more difficult to preserve a common culture and commitment to sustainability.
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