More than thirty years ago, in 1984, Prof. dr. Hein Schreuder was one of three professors to help establish the Faculty of Economics of the newly founded Maastricht University , now the School of Business and Economics (SBE). He left the university in 1991 to join DSM, where he served as Executive Vice-President Corporate Strategy & Acquisitions at DSM until 2012. Prof Schreuder returns to Maastricht on 24 April to deliver a keynote speech at Shaping the Future, a 30 Years of SBE celebratory event. His keynote will be based on a book recently coauthored called From Coal to Biotech, The Transformation of DSM with Business School Support. He spoke to us about his book and the experiences on which it is based.
In your book, you describe the transformation of DSM from its coal mining roots to a multinational life sciences and materials sciences company. What makes DSM an interesting case study for a book like this?
DSM is an interesting case because it has actually undergone two major transformations. It was established in 1902 as a state mining company, which thrived for more than 50 years. In the 1960s the realization struck that coal mining would not be an economically viable activity in the Netherlands in the medium to long term. The company convinced the government that the mines should be closed because they could not be maintained without large subsidies. That put about 2/3 of its employees at risk. The mining activities had to be shut down, as was announced in 1965. But the company had, fortunately, developed some chemical activities, based on the fact that mining produces cokes, from which you get cokes gas, a feedstock for gas-based chemicals, like fertilisers. This allowed the company to transform itself to a chemical company, which it did in the 60s and 70s.
Then there was a period of ‘strategic drift’, not knowing exactly what to do. It was a base chemical company. It had oil-based chemicals, gas-based chemicals. And that was the type of company I joined in 1991. There was an enormous strategic challenge, how to develop further. And my book describes how in the 90s and the early part of this century, over about 15 years, the company was transformed again to a life science and materials science company, which it is today. So it is the second transformation, which makes the case particularly interesting. There are not many companies in the world that have transformed twice, so fundamentally.
You joined DSM before the start of its second transformation in 1991. Can you describe the challenge you were facing and what strategies you used to plan and implement this transformation?
It was a very difficult time. There was a dip worldwide in commodity chemicals. The company made losses, so that was really the impetus to start planning for a new future and to answer the question whether DSM could survive and prosper in commodity chemicals or whether we would again need to do something different, and transform ourselves.
We developed a strategic approach called “strategy dialogues,” in order to find a more sustainable, economically interesting future. And that was done in four ‘strategic learning cycles’, as I call them. These cycles consist of three steps: the first is to develop a clear strategy, but that’s just the beginning. Other things need to fall into place and align with the strategy: organisational and structural factors, the culture, the processes, lots of times the people. These need to be thought through in order to make the implementation happen—that’s step two. The third step is that there are all kinds of systems and practices in an organisation which are geared toward the past rather than the future. So for example the reporting system, or promotion criteria, recruiting policies, information systems. These send out signals in a company about what is expected in terms of what you focus on, what you meet and report about. If you don’t change those signals, then the people will have signals geared to the past rather than the future. The last step in the strategic learning cycle is also to adjust your systems to make them future-oriented rather than a legacy of the past.
Do you think companies today face more challenges in terms of transformation than in the past?
My personal view is this has always been a challenge. If I think about the introduction of steam power, electricity, the computer, or things that my father had to grapple with, two world wars—is there more change now? I don’t know. Maybe there is, certainly technology is developing very rapidly in many fields. It might be that the challenge is partly greater now because we are in the midst of the real application of several technology revolutions. The digital revolution is converging with a revolution in nanotechnology, genomics, robotics, 3D printing, to name a few fields. This is impacting a lot of companies at the moment, so it might be that we are in a period of acceleration, but I think basically it has been the same question for all time: how to innovate, and how to transform yourself to be ready for the future, which is always different from the past.
DSM has changed dramatically. At what point is an evolved company actually a totally new one?
There are two answers to that. The first is that it is a completely different company from 1902 or 1965 if you look at things like the activities and the ways of working, the people. So in many ways it is different. It is also much more international now. English is the company language. However, I identify seven ‘company traits’ at the end of the book that are the constants, at least as I see it. And those are things like having a really long-term orientation: in mining you need that and I think that is where it comes from.
To move away from mining required a long-term orientation and I think we still have that today. We are placing some innovation bets that will only pay off in the medium- to long-term future. We have an evolutionary perspective as well. So a motto in the company is “transformation is in our genes.” That means the company is actively thinking about its future and realizing that it might have to change again. It’s been a learning organization always. We do not have a history of individuals at the top who make all the difference—not the heroic CEO, no—we always thought it’s a collective effort and that the CEO is a steward of the company. And we’ve also always had conservative financing. I think that has been a factor of success.
How can companies predict change in order to stay relevant and successful?
You don’t see all change coming, so sometimes you have to just react to it, but the main challenge is to really identify the long-term trends. I often say you have to separate the signals from the noise. There’s a lot of noise out there. But there are some signals and those are long-term and if they are relevant for what you do then you have to take them into account for your strategy and adapt to that expectation of the future. For example, DSM has seen the rise of emerging economies early on and has adapted accordingly, increasing its presence in those economies enormously over the last decade or so. We have also identified sustainability as a business driver relatively early and have focused our innovation pipeline from this perspective.
In our field it’s important, because we are in nutrition, that we address the two-fold challenge: a large part of the world is still undernourished and strangely enough an almost equally large part is in danger of being obese. Two challenges which are structural and which we have to address. Energy: we know that we need energy solutions, whatever the timing of that is. And we are betting on second-generation biofuels. You have to place your bets on answering a societal need to make a sustainable contribution, both economically and ecologically.
How does that fit your personality?
I think you have to enjoy this type of challenge. It fits my personality. I’d rather be involved in new things—like in the early 80s I was involved in establishing the new “faculty of economics” at Maastricht University the university of Maastricht and now the last 20 years in helping to construct a new DSM. We have achieved that, we made it public in 2012. The second transformation is complete. I like building new things, innovation, exploration, and I prefer that to running an established show.
Your book also talks about collaboration between with corporate and academic world.
I think the corporate world and academic world are now communicating more together. There was a greater separation in the 70s and 80s, even the 90s, in terms of communication and collaboration.
DSM is in material science and life sciences, and here a number of the fundamental breakthroughs come from the university side, but I would say just as many from the corporate side. If you go to the world of business and the field of business economics, strategy, organisation, innovation, things like that, then I think most of the innovation comes from the business world itself. And then there is a place for an intense dialogue with universities and business schools, to evaluate those innovations and search for explanations of failures and successes.
We know that most innovations do not succeed, whether they are technological, organisational, financial or product innovations. In the field of innovation a failure rate of 80 percent is not unusual. So you need a lot of evaluation and reflection on what is going on, you need to look at the factors involved in explaining those failure rates as well as the chances for success and what you can do about them. And I think that is especially what universities and business schools are good at: systematic reflection. So it is a collaborative effort, with each part having its own role.
To purchase the book or read a free preview, visit the publisher’s website.
To purchase the book or read a free preview, visit the publisher’s site.