Air Products and Chemicals, Inc. (NYSE: APD) is an international corporation whose principal business is selling gases and chemicals for industrial uses. Air Products' headquarters is in Allentown, Pennsylvania, in the Lehigh Valley region of Pennsylvania, in the United States. Air Products is the Lehigh Valley's third largest employer, after Lehigh Valley Hospital and St. Luke's Hospital.
Air Products serves customers in technology, energy, healthcare, food and industrial markets worldwide with a unique portfolio of products, services and solutions, providing atmospheric gases (mainly oxygen, nitrogen and argon), hydrogen, carbon monoxide, process and specialty gases, performance materials and chemical intermediates.
Air Products has built leading positions in key growth markets such as semiconductor materials, refinery hydrogen, home healthcare services, natural gas liquefaction, and advanced coatings and adhesives.
Air Products also provides the liquid hydrogen and liquid oxygen that provide fuel for the Space Shuttle External Tank. Air Products has had a working relationship with NASA for 50 years. In fact, Air Products has supplied all the liquid hydrogen used for every Space Shuttle launch and prior Mercury and Apollo missions. [3
Air Products and Chemicals, Inc. is the world's third largest producer of industrial, specialty, and medical gases such as oxygen, nitrogen, argon, and hydrogen. Industrial gases contribute over half of the company's sales and nearly three-fourths of its profits. The company's chemicals and intermediates segment, which comprises about one-third of sales, claims U.S. leadership in polyurethanes, polymers, performance, and industrial segments. Air Products is also a fully-integrated supplier of industrial and specialty gases, equipment, and technical services to the electronics industry; the company dominated this market, with over one-fourth of the electronics industry's sales in the early 1990s. In the late 1980s and early 1990s, Air Products diversified into environmental energy systems, including waste-to-energy projects, tire recycling, and flue-gas desulfurization. Geographic expansion into Europe and the Pacific Rim has also opened new opportunities to the firm. The creation, development, and growth of Air Products has been characterized by innovation. As former company president Dexter F. Baker noted in Research Management magazine in 1986, the company found success through the employment of four fundamental criteria: 'finding a market that is not being well-satisfied, creating a superior technical solution, commercializing the solution, and acting as an investor in one's own new creative solution.'
Air Products founder Leonard Parker Pool began his career as a teenager selling oxygen to industrial customers, and, by the age of 30, he was district manager for Compressed Industrial Gases. In 1938, when Pool began his work, the oxygen market was dominated by such large companies as Linde A.G. and the Air Reduction Company, which avoided price wars and did not intrude in each other's sales territory. Oxygen was inexpensive to distill, and the raw material from which it is distilled, air, is free, so the chief costs involved shipping oxygen in heavy containers. Pool's idea was to distill oxygen in the customer's plant; however, the cost of this plan would have been prohibitive unless a cheap oxygen generator could be designed.
Pool, the son of a boiler-maker, had only a high school education, so, to design the generator he needed, he hired a young engineer by the name of Frank Pavlis to work with him. Pool's and Pavlis's design was revolutionary because it used a compressor lubricated with liquid oxygen and graphite. At that time, competitor compressors were lubricated with water due to the fear that the compressed oxygen, in contact with a lubricating oil, would ignite when exposed to the smallest spark. When oxygen was compressed using water, several steps were required to then remove the water from the oxygen. The new generator, however, could skip these steps and, as a result, it was less expensive to build, install, and maintain.
By 1940, Pool and Pavlis had a functioning generator. Pool quit his job, sold his insurance policy, and borrowed all the money that his wife--a schoolteacher--had saved. With this capital, he founded Air Products Inc. and opened shop in a former mortuary. In these last years of the Great Depression, the American business climate was dismal, and Pool had a great deal of difficulty selling his generators.
With the onset of World War II, however, Air Products began to thrive, manufacturing mobile oxygen generators for the armed services and heavy industry. When the war ended, Air Products lost many of its clients and was forced to aggressively pursue new accounts. Although Air Products could provide oxygen at a cost 25 percent lower than its competitors, customers were slow to take advantage of the new system, which was offered through five- to ten-year leasing agreements, under which Air Products would maintain the generator and teach employees how to operate it. While customers found the idea appealing, many were locked into long-term contracts with a company that shipped oxygen to their plants.
In desperation, Pool traveled to Pittsburgh and used a sales technique called 'door-stepping' to win a major contract with Weirton Steel. This sales technique involved staying at the customer's plant until the contract was signed. Pool said years later, 'God, we just lived at Weirton Steel when we learned they were interested in our proposition.' Indeed, Weirton was practically Air Product's only customer at that time.
In need of funds to construct a new plant, Air Products sent out a prospectus to potential investors. Pool acknowledged the company's inexperience, stating that Air Products 'has no background in prewar civil business,' and that in competing 'by a new method of distribution in a well-established field against experienced competitors who have much greater resources' Air Products expected 'to operate at a loss following the completion of its government contracts.' The company's boldness and candor apparently impressed investors, and the necessary $300,000 was raised. Soon, Air Products had installed generators at several chemical companies and had built a huge generator for Weirton Steel, a generator 100 times larger than any that had been built before.
Pool attributed a large part of his company's success to his 'tiger pack,' a group of aggressive young engineers serving as sales staff at Air Products. Pool maintained a close watch over operations, and, although he became known for his sense of humor and his commitment to his employees, he was also capable of dealing out a tongue-lashing to anyone who mislead a customer or lost a sale.
In the mid-1950s, Air Products profited from the launching of the first Soviet Sputnik, which American scientists surmised was powered by liquid hydrogen. When the U.S. defense department wanted liquid hydrogen, Air Products was asked to supply it. As a security precaution, new Air Products Company plants were provided with such code names as 'Baby-Bear' and 'Project Rover'; one large plant was disguised as the 'Apix Fertilizer Company.'
In addition to the production of liquid hydrogen, Air Products also branched out into new areas of chemistry like fluorine chemistry and cryogenics (the science of ultra-low temperatures). The company's oxygen business also continued to grow. The company no longer leased generators but built multi-million dollar operations near major customers, including Ford Motor Co. and U.S. Steel, selling any excess capacity to smaller customers.
Throughout the 1960s, Air Products thrived; sales rose 400 percent, while earnings rose 500 percent. The expansion into merchant gas (gas sold in tanks) proved profitable for the company, although Air Products was a latecomer to the field. Air Products used its late entrance into the field to its advantage by conceding the saturated markets to its well established rivals, Linde and Air Reduction Co., seeking out smaller, more receptive markets instead. In fact, as Air Products saw its fortunes growing, competitors like Linde experienced decreased profits.
During this time, oxygen-fired furnaces became a popular alternative to the hearth-style furnaces used in the steel-making industry, increasing oxygen consumption considerably. Nitrogen, another Air Products specialty, was also in demand as a refrigerant. Air Products also began selling the implements necessary to handling gases, such as welding tools, anesthesia equipment and cryogenic systems. Gases and gas-related equipment accounted for approximately three-fourths of Air Product's profits during the 1960s; the remainder came from chemicals and engineering services.
The diversification of Air Products into chemicals began in 1962 with the company's purchase of Houdry Chemicals and, later, Air Company, a specialty chemical company. When the Air Company was purchased by Air Products, it was losing money. To achieve a turnaround, Air Products took Air Company's acetylic chemicals and made them into specialty chemicals which fetched a higher price; the plant became profitable almost immediately. In 1969, Air Products purchased Escambia Chemicals, paying a cash price well below its market value. Escambia's attraction lay in a product called DABCO, regarded as the best catalyst for making urethane foam.
Due to the energy crisis and a recession, the 1970s was a difficult period for many chemical companies. While Air Products could not sustain the phenomenal growth it experienced in the 1960s, its annual sales and profits increased at least nine percent and sometimes as high as 20 percent. During this time, the company held a strong position in industrial gases both in the United States and abroad, as its gases were used by virtually every major industry. The chemical division performed erratically, however, and, during the recession, its engineering services division, which designed pipelines and plants, yielded disappointing results. Nevertheless, Air Products' industrial gases kept the company afloat.
The energy crisis had both positive and negative effects on Air Products. The industrial gases division, which consumed a large amount of electricity, was sensitive to rising utility rates. However, as the price of organic fuels rose, oxygen became a more popular fuel. The increased production costs of petro-chemicals and plastics were offset by higher demand for cryogenic equipment and gases to liquify natural gas. Like many other successful chemical companies, Air Products was thus able to benefit from the high energy prices in some cases.
During this time, the OPEC oil embargo convinced company management to invest in synthetic fuels. In 1980, Air Products, Wheelbraton Fry Inc., the state of Kentucky, and the U.S. Department of Energy formed a joint venture to produce a high energy, low pollution fuel from coal. Air Products invested $45 million in the project, while the bulk of the money, $748 million, came from the federal government. As none of the various synthetic fuel projects were successful, Air Products' only consolation was the high levels of oxygen consumed in the unsuccessful venture. Still, Air Products remained interested in energy development. In 1985, the company bought a methane recovery plant and accelerated development of a plant that converted garbage to steam and electricity.
Despite the disappointment of the synfuel project, Air Products sales grew an average of 20 percent per year throughout the 1970s. A 12-year, $281 million contract to supply liquid hydrogen for the space shuttle bolstered earnings as did the discovery of expanded uses for industrial gases. For instance, the food industry increased its use of hydrogen for hydrogenating vegetable oils, and flash-freezing, a process which required nitrogen, became an increasingly more popular technique.
In the 1970s and the early 1980s, Air Products, like other highly successful chemical companies of the same size, became concerned with having a product that could be used by a myriad of industries, in order to avoid overdependance on staple products linked to cyclical industries. Toward this end, Air Products focused on marketing oxygen and industrial gases to a wide variety of clients, so that dramatic downturns in an industry--such as steel manufacturing--would not be fatal to the company.
Also during this time, Air Products established a reputation for hiring highly competent, professional engineers, chemists, and business staff. Rather than assuming responsibility for such hirings, company president Edward Donley delegated the job to the vice-presidents and line managers, whom, according Donley, were better judges of an applicant's potential than a professional recruiter. The applicants hired by Air Products sometimes spent up to three years working in different departments of their choice, in order to decide where their skills would be best employed. Air Products also believed the exposure of engineers and chemists to management positions would prove vital to future success.
Air Products also demonstrated a commitment to the health and safety of its workers. In the 1970s, when three employees died from PVC induced cancer, Air Products periodically tested 492 other workers at two plants for possible exposure, and steps were taken to minimize health risks. In the late 1980s and early 1990s, the company developed 'Responsible Care' objectives to promote safety, environmentalism, and health at its facilities. At the same time, however, the company initiated a legal challenge to industry regulations, claiming that many were unfeasible to implement.
In 1986, Air Products embarked on a ten-year strategic plan that added a third core business, environment-energy, and focused on globalization of the firm. Between 1986 and 1993, the company invested $1 billion in European facilities as part of its strategy to replace older, less efficient plants, add new production capacity, and create new products. Significant investments in Asia resulted in the construction of seven industrial gas plants by 1992. The company also gained access to significant markets by buying mid-size competitors and entering into joint ventures.
By 1990, investments of $1.2 billion in the environmental-energy systems segment had expanded that division to include: a refuse-fired cogeneration facility; the American REF-FUEL joint venture with Browning-Ferris for building waste-to-energy facilities; a joint venture with Mitsubishi Heavy Industries to market flue gas desulfurization systems; and a methane gas reclamation business for landfills. Air Products' tire recycling program, which was undertaken in 1988, came to fruition in the early 1990s, as the rubber recovered from scrap tires promised to reduce the environmental and health hazards presented by scrap tires and offered cost savings for the production of rubberized asphalt, shoe soles, carpet underlay, and other products. Although Air Products faced well-established competition in the environmental arena, the rapid expansion of that market promised significant returns.
During this time, Air Products' earnings per share increased about 20 percent per year, double the rate of Standard & Poor's industrial index. In 1992, Harold A. Wagner, who had been a key proponent of the strategic plan, replaced Dexter Baker as chairperson and chief executive officer, and Air Products launched a two-year program to consolidate and restructure its $1.1 billion chemical business. The reorganization streamlined the chemicals segment from four to three divisions, realigned its management, and reduced its work force by seven to ten percent, or 1,000 to 1,400 jobs. In 1993, Air Products achieved record cash flows, sold record volumes of industrial gases and chemicals, and ranked as the third largest supplier of industrial gases in the world. The company planned to continue expanding its global investment programs throughout the 1990s.
Principal Subsidiaries: Air Products International Corp.; Air Products Manufacturing Corp.; Air Products REF-FUEL Holdings Corp.; Air Products REF-FUEL of Essex County, Inc.; Air Products REF-FUEL of Hempstead, Inc.; APCI (U.K.), Inc.; GSF Energy Inc.; Permea, Inc.; Prodair Corp.; Stearns-Catalytic Corp.; Air Products S.A. (France); Air Products Management S.A. (Belgium); Air Products Gases Industriais Ltda. (Brazil); Air Products Canada; Air Products Japan Inc.; Prodair S.A.; Air Products Nederland B.V.; Air Products plc (United Kingdom); Air Products (GB) Ltd.; Air Products (U.K.) Ltd.; Air Products (B.R) Ltd.; Anchor Chemical Group plc; Air Products GmbH (Germany).
The most profitable companies are those that make the smartest decisions about allocating resources among marketing, sales and service efforts, according to a new study. The research also reveals which specific investments in attracting and retaining customers have the most impact.
It was the legendary Philadelphia retailer John Wanamaker who uttered that now famous management complaint: "Half the money I spend on advertising is wasted; the trouble is I don't know which half." The problem, extended to the broader marketing, sales and service environment, is as old as commerce itself: There's never been an objective, reliable way to predict how much proposed investments in attracting and retaining customers will affect profits.
Until now, that is. An ambitious study recently completed by Accenture establishes for the first time the strong link between excellence in a company's overall interaction with its customers—what we call customer relationship management, or CRM—and financial performance (see box)
Our research shows that companies that have not invested in developing CRM capabilities are leaving profits on the table.
In fact, differences in these capabilities account for roughly half the difference between top and average financial performance.
Cause and EffectThe best bets
According to this research, a typical $1 billion business unit could add $40 million in profit by enhancing CRM capabilities by 10 percent. If that same business were able to ramp up its CRM performance even more—propelling itself from average to high performance in its CRM capabilities—it could improve pretax profit by as much as $120 million.
The study's second set of findings may be even more useful to executives faced with CRM decisions. If the initial findings make it easier to justify investment in customer relationship management overall, these follow-up findings make it clear which specific investments return the most value—taking the guesswork out of those critical decisions about how best to allocate resources among marketing, sales and service efforts.
The study identified more than 50 individual marketing, sales and service capabilities, 21 of which have particularly high impact across the industries we targeted. Of those 21 capabilities, 5 produce the highest impact on financial performance. They are, in order of impact: customer service, which is tied for highest impact with motivating and rewarding employees; turning customer information into insight; attracting and retaining personnel; and building selling and service skills. Excellence in these areas, it turns out, is the factor most closely associated with high return on sales in every industry we studied.
The implication is clear: For management teams looking for places to invest in customer relationship management, these five capabilities are likely the best bets.
Customer Service
It stands to reason that getting it right in customer service leads to better financial performance. Indeed, it is well documented that the cost of winning a new customer is much greater than the cost of holding on to a current one—and customer service is often the single most important factor in customer retention.
What's more, although a customer may tell a few friends about a truly satisfying experience with a company, that same customer would tell many more about a customer service failure.
This is why companies like Marriott invest heavily in new capabilities to enhance customer service. The company has determined that guests' first 10 minutes in the hotel are critical to their impression of their stay. Information technology allows front-desk employees to call up a guest's profile (based on past stays) on check-in. A personalized touch as small as asking, "Do you still prefer a nonsmoking room?" can go a long way to building a sense of relationship.
Not surprisingly, successful companies invest in and deliver higher levels of service to the customers most likely to value, and pay for, such enhanced service. Dell Computer Corp. and other computer manufacturers have dedicated Web sites for high-volume users, for example; chemicals and forest-products companies are following their lead. Airlines provide their most frequent flyers with special phone numbers, check-in services and a higher level of responsiveness.
Enhance CapabilitiesTop-performing companies also make it a practice to alert customers to potential problems while those problems are comparatively small, contained and manageable. Such practices pay the dividend of building customer trust and hence loyalty. A case in point: A French bottled-gas company saw its customer defection rate reduced by 50 percent after a six-month pilot program that anticipated and addressed service delivery problems. (In addition, net profit is projected to increase by $20 million over five years.)
Motivating and Rewarding Employees
Just as important to profitability is the ability to motivate and appropriately reward the people involved in customer relationship management. This isn't just "showing them the money." Often the rewards that make the difference are more psychic in nature.
Sprint PCS, for example, rewards strong sales performance with rotating assignments to coveted special projects. Intel augments its stock options, profit sharing and performance bonuses with a host of achievement awards and eight-week paid sabbaticals for employees who spend seven years with the company. At Air Products and Chemicals, James McFadden, director of strategic accounts, told us that the company pays competitively but "just as important are the respect and management access that the top-performing salespeople get."
Meanwhile, even financial rewards get more creative for customer-facing staff in high-performing companies. An example is Charles Schwab, where customer teams are paid salaries plus bonuses, not commissions; bonuses are based on customers' service experience and overall asset growth.
Converting Information into Insight
The third CRM capability in our study is strictly related to the new economy-the ability to take the overwhelming amount of transaction data and other information companies now capture about customers and transform it into real insight. The highest-performing companies give their frontline employees quick, easy access to critical data—purchases, contact history and product inquiries, as well as demographic and lifestyle data. For example, Mercedes-Benz has built a sophisticated database of 10 million customers across Europe to support dealer activities, customer assistance, marketing analysis and pre-launch targeting. Telenor Mobile, Norway's leading telecom, IT and media company, has armed every member of its sales organization with all the information needed to manage a customer's complete sales life cycle.
Other top performers even share information with channel partners outside the organization. This practice has become a primary way to differentiate companies within the communications industry, to the benefit of market leaders like U.S. Cellular (for a related article, see "What are telcos waiting for?"). The common basis of understanding helps everyone work together to better serve the needs of individual customers.
Attracting and Retaining Personnel
In Fortune magazine's 1998, 1999 and 2000 listings of "The 100 Best Companies to Work For," Southwest Airlines ranked in the top four, an admirable achievement that translates into easier employee recruitment and very low turnover-and great performance in customer relationship management.
Best-practice companies attract the best people by targeting specific traits, often including passion for the product or service. Herb Kelleher, chairman of Southwest Airlines, put it this way: "We would rather have somebody with less education and experience but with a great attitude."
Although leading companies recruit continuously, they appear to resist pressure to fill positions with candidates who are less than the best. Sprint PCS spent 12 months finding a sales manager to launch its Chicago office.
Successful companies also focus on keeping their people longer. It makes sense: Having the same people work with a customer or group of customers gives them an opportunity to develop deep insights and cultivate long-term relationships, which tend to bring more value for both parties.
Attracting and retaining employees "is an art, and you have to do it one person at a time," according to one high-tech executive we interviewed. Still, some practices crop up with regularity.
One strategy is to engineer a steady career progression over the long term, rather than a fast start followed by a mid-career snooze. Another is to create channels allowing feedback to flow both upward and downward in the organization. People feel more of a stake in a company when they feel they have more of a voice.
Building Selling and Service Skills
The best-performing companies train and coach their people in a broad set of skills. These skills include not only using new CRM software and traditional basics like writing persuasive letters and delivering compelling presentations, but also less obvious skills like listening empathetically, handling tough questions and complaints, and negotiating successfully.
Just as important, high-performing companies conduct such training in more effective ways. Rather than traditional classroom settings, they tend to favor "action learning" techniques, which immerse learners in simulations of customer situations and give them the opportunity to apply new techniques in a safe but realistic environment. (For a related article, see "Old dogs, new tricks," Outlook, Vol. XII, No. 1, January 2000).
A large pharmaceuticals company took this approach to new heights when it rented out the entire San Antonio Alamodome to train its people to sell and support an important new drug. The facility was outfitted as a representation of the world—complete with doctors' offices, HMO boardrooms and more—in which the company's people would have to operate effectively starting on day one of the rollout.
Finally, the companies that have the best success in imparting new skills to their people are also the ones most concerned with measuring that success. It's a thorny problem to measure the performance of a skills-building program, but the constant effort to do so seems to keep these companies' training staffs focused on delivering results.
To be sure, not every business is the same, and these five capabilities do not necessarily represent the five areas that will produce the highest returns for your business. The returns projected from improvements in these areas assume current average performance; therefore, there is room for an incremental investment to yield significant improvement.
Of course, any given company can diverge from our general findings. Understanding the true impact of, say, a 10 percent improvement in customer service capabilities depends on first knowing how your current capability stacks up against your industry competitors.
To help companies identify those CRM capabilities that will provide them with the biggest payoffs, Accenture has constructed a straightforward self-assessment tool that allows a company to find where its CRM gaps are biggest, and therefore where its priorities for new efforts should be placed. With better insight into probable returns, management teams can proceed with confidence. (For more information on the tool, e-mail [email protected].)
The findings of our study couldn't come at a more opportune time. Competition is increasing in every major industry. New technologies are rapidly changing the realm of what is possible in customer contact, care and insight. And customer expectations for quality, service and value are rising daily.
As our research demonstrates, CRM capabilities already account for roughly half the difference between business winners and the rest of the pack. In the very near future, customer relationship management will be more important still and it could be your company's greatest strength.
Mark Wolfe, a partner heading the Atlanta-based Accenture Business Launch Centers, is the lead strategy partner within the firm's global Customer Relationship Management group. Mr. Wolfe led a six-industry research series on CRM capabilities; the results of this work in the communications industry has been published internationally.
Air Products serves customers in technology, energy, healthcare, food and industrial markets worldwide with a unique portfolio of products, services and solutions, providing atmospheric gases (mainly oxygen, nitrogen and argon), hydrogen, carbon monoxide, process and specialty gases, performance materials and chemical intermediates.
Air Products has built leading positions in key growth markets such as semiconductor materials, refinery hydrogen, home healthcare services, natural gas liquefaction, and advanced coatings and adhesives.
Air Products also provides the liquid hydrogen and liquid oxygen that provide fuel for the Space Shuttle External Tank. Air Products has had a working relationship with NASA for 50 years. In fact, Air Products has supplied all the liquid hydrogen used for every Space Shuttle launch and prior Mercury and Apollo missions. [3
Air Products and Chemicals, Inc. is the world's third largest producer of industrial, specialty, and medical gases such as oxygen, nitrogen, argon, and hydrogen. Industrial gases contribute over half of the company's sales and nearly three-fourths of its profits. The company's chemicals and intermediates segment, which comprises about one-third of sales, claims U.S. leadership in polyurethanes, polymers, performance, and industrial segments. Air Products is also a fully-integrated supplier of industrial and specialty gases, equipment, and technical services to the electronics industry; the company dominated this market, with over one-fourth of the electronics industry's sales in the early 1990s. In the late 1980s and early 1990s, Air Products diversified into environmental energy systems, including waste-to-energy projects, tire recycling, and flue-gas desulfurization. Geographic expansion into Europe and the Pacific Rim has also opened new opportunities to the firm. The creation, development, and growth of Air Products has been characterized by innovation. As former company president Dexter F. Baker noted in Research Management magazine in 1986, the company found success through the employment of four fundamental criteria: 'finding a market that is not being well-satisfied, creating a superior technical solution, commercializing the solution, and acting as an investor in one's own new creative solution.'
Air Products founder Leonard Parker Pool began his career as a teenager selling oxygen to industrial customers, and, by the age of 30, he was district manager for Compressed Industrial Gases. In 1938, when Pool began his work, the oxygen market was dominated by such large companies as Linde A.G. and the Air Reduction Company, which avoided price wars and did not intrude in each other's sales territory. Oxygen was inexpensive to distill, and the raw material from which it is distilled, air, is free, so the chief costs involved shipping oxygen in heavy containers. Pool's idea was to distill oxygen in the customer's plant; however, the cost of this plan would have been prohibitive unless a cheap oxygen generator could be designed.
Pool, the son of a boiler-maker, had only a high school education, so, to design the generator he needed, he hired a young engineer by the name of Frank Pavlis to work with him. Pool's and Pavlis's design was revolutionary because it used a compressor lubricated with liquid oxygen and graphite. At that time, competitor compressors were lubricated with water due to the fear that the compressed oxygen, in contact with a lubricating oil, would ignite when exposed to the smallest spark. When oxygen was compressed using water, several steps were required to then remove the water from the oxygen. The new generator, however, could skip these steps and, as a result, it was less expensive to build, install, and maintain.
By 1940, Pool and Pavlis had a functioning generator. Pool quit his job, sold his insurance policy, and borrowed all the money that his wife--a schoolteacher--had saved. With this capital, he founded Air Products Inc. and opened shop in a former mortuary. In these last years of the Great Depression, the American business climate was dismal, and Pool had a great deal of difficulty selling his generators.
With the onset of World War II, however, Air Products began to thrive, manufacturing mobile oxygen generators for the armed services and heavy industry. When the war ended, Air Products lost many of its clients and was forced to aggressively pursue new accounts. Although Air Products could provide oxygen at a cost 25 percent lower than its competitors, customers were slow to take advantage of the new system, which was offered through five- to ten-year leasing agreements, under which Air Products would maintain the generator and teach employees how to operate it. While customers found the idea appealing, many were locked into long-term contracts with a company that shipped oxygen to their plants.
In desperation, Pool traveled to Pittsburgh and used a sales technique called 'door-stepping' to win a major contract with Weirton Steel. This sales technique involved staying at the customer's plant until the contract was signed. Pool said years later, 'God, we just lived at Weirton Steel when we learned they were interested in our proposition.' Indeed, Weirton was practically Air Product's only customer at that time.
In need of funds to construct a new plant, Air Products sent out a prospectus to potential investors. Pool acknowledged the company's inexperience, stating that Air Products 'has no background in prewar civil business,' and that in competing 'by a new method of distribution in a well-established field against experienced competitors who have much greater resources' Air Products expected 'to operate at a loss following the completion of its government contracts.' The company's boldness and candor apparently impressed investors, and the necessary $300,000 was raised. Soon, Air Products had installed generators at several chemical companies and had built a huge generator for Weirton Steel, a generator 100 times larger than any that had been built before.
Pool attributed a large part of his company's success to his 'tiger pack,' a group of aggressive young engineers serving as sales staff at Air Products. Pool maintained a close watch over operations, and, although he became known for his sense of humor and his commitment to his employees, he was also capable of dealing out a tongue-lashing to anyone who mislead a customer or lost a sale.
In the mid-1950s, Air Products profited from the launching of the first Soviet Sputnik, which American scientists surmised was powered by liquid hydrogen. When the U.S. defense department wanted liquid hydrogen, Air Products was asked to supply it. As a security precaution, new Air Products Company plants were provided with such code names as 'Baby-Bear' and 'Project Rover'; one large plant was disguised as the 'Apix Fertilizer Company.'
In addition to the production of liquid hydrogen, Air Products also branched out into new areas of chemistry like fluorine chemistry and cryogenics (the science of ultra-low temperatures). The company's oxygen business also continued to grow. The company no longer leased generators but built multi-million dollar operations near major customers, including Ford Motor Co. and U.S. Steel, selling any excess capacity to smaller customers.
Throughout the 1960s, Air Products thrived; sales rose 400 percent, while earnings rose 500 percent. The expansion into merchant gas (gas sold in tanks) proved profitable for the company, although Air Products was a latecomer to the field. Air Products used its late entrance into the field to its advantage by conceding the saturated markets to its well established rivals, Linde and Air Reduction Co., seeking out smaller, more receptive markets instead. In fact, as Air Products saw its fortunes growing, competitors like Linde experienced decreased profits.
During this time, oxygen-fired furnaces became a popular alternative to the hearth-style furnaces used in the steel-making industry, increasing oxygen consumption considerably. Nitrogen, another Air Products specialty, was also in demand as a refrigerant. Air Products also began selling the implements necessary to handling gases, such as welding tools, anesthesia equipment and cryogenic systems. Gases and gas-related equipment accounted for approximately three-fourths of Air Product's profits during the 1960s; the remainder came from chemicals and engineering services.
The diversification of Air Products into chemicals began in 1962 with the company's purchase of Houdry Chemicals and, later, Air Company, a specialty chemical company. When the Air Company was purchased by Air Products, it was losing money. To achieve a turnaround, Air Products took Air Company's acetylic chemicals and made them into specialty chemicals which fetched a higher price; the plant became profitable almost immediately. In 1969, Air Products purchased Escambia Chemicals, paying a cash price well below its market value. Escambia's attraction lay in a product called DABCO, regarded as the best catalyst for making urethane foam.
Due to the energy crisis and a recession, the 1970s was a difficult period for many chemical companies. While Air Products could not sustain the phenomenal growth it experienced in the 1960s, its annual sales and profits increased at least nine percent and sometimes as high as 20 percent. During this time, the company held a strong position in industrial gases both in the United States and abroad, as its gases were used by virtually every major industry. The chemical division performed erratically, however, and, during the recession, its engineering services division, which designed pipelines and plants, yielded disappointing results. Nevertheless, Air Products' industrial gases kept the company afloat.
The energy crisis had both positive and negative effects on Air Products. The industrial gases division, which consumed a large amount of electricity, was sensitive to rising utility rates. However, as the price of organic fuels rose, oxygen became a more popular fuel. The increased production costs of petro-chemicals and plastics were offset by higher demand for cryogenic equipment and gases to liquify natural gas. Like many other successful chemical companies, Air Products was thus able to benefit from the high energy prices in some cases.
During this time, the OPEC oil embargo convinced company management to invest in synthetic fuels. In 1980, Air Products, Wheelbraton Fry Inc., the state of Kentucky, and the U.S. Department of Energy formed a joint venture to produce a high energy, low pollution fuel from coal. Air Products invested $45 million in the project, while the bulk of the money, $748 million, came from the federal government. As none of the various synthetic fuel projects were successful, Air Products' only consolation was the high levels of oxygen consumed in the unsuccessful venture. Still, Air Products remained interested in energy development. In 1985, the company bought a methane recovery plant and accelerated development of a plant that converted garbage to steam and electricity.
Despite the disappointment of the synfuel project, Air Products sales grew an average of 20 percent per year throughout the 1970s. A 12-year, $281 million contract to supply liquid hydrogen for the space shuttle bolstered earnings as did the discovery of expanded uses for industrial gases. For instance, the food industry increased its use of hydrogen for hydrogenating vegetable oils, and flash-freezing, a process which required nitrogen, became an increasingly more popular technique.
In the 1970s and the early 1980s, Air Products, like other highly successful chemical companies of the same size, became concerned with having a product that could be used by a myriad of industries, in order to avoid overdependance on staple products linked to cyclical industries. Toward this end, Air Products focused on marketing oxygen and industrial gases to a wide variety of clients, so that dramatic downturns in an industry--such as steel manufacturing--would not be fatal to the company.
Also during this time, Air Products established a reputation for hiring highly competent, professional engineers, chemists, and business staff. Rather than assuming responsibility for such hirings, company president Edward Donley delegated the job to the vice-presidents and line managers, whom, according Donley, were better judges of an applicant's potential than a professional recruiter. The applicants hired by Air Products sometimes spent up to three years working in different departments of their choice, in order to decide where their skills would be best employed. Air Products also believed the exposure of engineers and chemists to management positions would prove vital to future success.
Air Products also demonstrated a commitment to the health and safety of its workers. In the 1970s, when three employees died from PVC induced cancer, Air Products periodically tested 492 other workers at two plants for possible exposure, and steps were taken to minimize health risks. In the late 1980s and early 1990s, the company developed 'Responsible Care' objectives to promote safety, environmentalism, and health at its facilities. At the same time, however, the company initiated a legal challenge to industry regulations, claiming that many were unfeasible to implement.
In 1986, Air Products embarked on a ten-year strategic plan that added a third core business, environment-energy, and focused on globalization of the firm. Between 1986 and 1993, the company invested $1 billion in European facilities as part of its strategy to replace older, less efficient plants, add new production capacity, and create new products. Significant investments in Asia resulted in the construction of seven industrial gas plants by 1992. The company also gained access to significant markets by buying mid-size competitors and entering into joint ventures.
By 1990, investments of $1.2 billion in the environmental-energy systems segment had expanded that division to include: a refuse-fired cogeneration facility; the American REF-FUEL joint venture with Browning-Ferris for building waste-to-energy facilities; a joint venture with Mitsubishi Heavy Industries to market flue gas desulfurization systems; and a methane gas reclamation business for landfills. Air Products' tire recycling program, which was undertaken in 1988, came to fruition in the early 1990s, as the rubber recovered from scrap tires promised to reduce the environmental and health hazards presented by scrap tires and offered cost savings for the production of rubberized asphalt, shoe soles, carpet underlay, and other products. Although Air Products faced well-established competition in the environmental arena, the rapid expansion of that market promised significant returns.
During this time, Air Products' earnings per share increased about 20 percent per year, double the rate of Standard & Poor's industrial index. In 1992, Harold A. Wagner, who had been a key proponent of the strategic plan, replaced Dexter Baker as chairperson and chief executive officer, and Air Products launched a two-year program to consolidate and restructure its $1.1 billion chemical business. The reorganization streamlined the chemicals segment from four to three divisions, realigned its management, and reduced its work force by seven to ten percent, or 1,000 to 1,400 jobs. In 1993, Air Products achieved record cash flows, sold record volumes of industrial gases and chemicals, and ranked as the third largest supplier of industrial gases in the world. The company planned to continue expanding its global investment programs throughout the 1990s.
Principal Subsidiaries: Air Products International Corp.; Air Products Manufacturing Corp.; Air Products REF-FUEL Holdings Corp.; Air Products REF-FUEL of Essex County, Inc.; Air Products REF-FUEL of Hempstead, Inc.; APCI (U.K.), Inc.; GSF Energy Inc.; Permea, Inc.; Prodair Corp.; Stearns-Catalytic Corp.; Air Products S.A. (France); Air Products Management S.A. (Belgium); Air Products Gases Industriais Ltda. (Brazil); Air Products Canada; Air Products Japan Inc.; Prodair S.A.; Air Products Nederland B.V.; Air Products plc (United Kingdom); Air Products (GB) Ltd.; Air Products (U.K.) Ltd.; Air Products (B.R) Ltd.; Anchor Chemical Group plc; Air Products GmbH (Germany).
The most profitable companies are those that make the smartest decisions about allocating resources among marketing, sales and service efforts, according to a new study. The research also reveals which specific investments in attracting and retaining customers have the most impact.
It was the legendary Philadelphia retailer John Wanamaker who uttered that now famous management complaint: "Half the money I spend on advertising is wasted; the trouble is I don't know which half." The problem, extended to the broader marketing, sales and service environment, is as old as commerce itself: There's never been an objective, reliable way to predict how much proposed investments in attracting and retaining customers will affect profits.
Until now, that is. An ambitious study recently completed by Accenture establishes for the first time the strong link between excellence in a company's overall interaction with its customers—what we call customer relationship management, or CRM—and financial performance (see box)
Our research shows that companies that have not invested in developing CRM capabilities are leaving profits on the table.
In fact, differences in these capabilities account for roughly half the difference between top and average financial performance.
Cause and EffectThe best bets
According to this research, a typical $1 billion business unit could add $40 million in profit by enhancing CRM capabilities by 10 percent. If that same business were able to ramp up its CRM performance even more—propelling itself from average to high performance in its CRM capabilities—it could improve pretax profit by as much as $120 million.
The study's second set of findings may be even more useful to executives faced with CRM decisions. If the initial findings make it easier to justify investment in customer relationship management overall, these follow-up findings make it clear which specific investments return the most value—taking the guesswork out of those critical decisions about how best to allocate resources among marketing, sales and service efforts.
The study identified more than 50 individual marketing, sales and service capabilities, 21 of which have particularly high impact across the industries we targeted. Of those 21 capabilities, 5 produce the highest impact on financial performance. They are, in order of impact: customer service, which is tied for highest impact with motivating and rewarding employees; turning customer information into insight; attracting and retaining personnel; and building selling and service skills. Excellence in these areas, it turns out, is the factor most closely associated with high return on sales in every industry we studied.
The implication is clear: For management teams looking for places to invest in customer relationship management, these five capabilities are likely the best bets.
Customer Service
It stands to reason that getting it right in customer service leads to better financial performance. Indeed, it is well documented that the cost of winning a new customer is much greater than the cost of holding on to a current one—and customer service is often the single most important factor in customer retention.
What's more, although a customer may tell a few friends about a truly satisfying experience with a company, that same customer would tell many more about a customer service failure.
This is why companies like Marriott invest heavily in new capabilities to enhance customer service. The company has determined that guests' first 10 minutes in the hotel are critical to their impression of their stay. Information technology allows front-desk employees to call up a guest's profile (based on past stays) on check-in. A personalized touch as small as asking, "Do you still prefer a nonsmoking room?" can go a long way to building a sense of relationship.
Not surprisingly, successful companies invest in and deliver higher levels of service to the customers most likely to value, and pay for, such enhanced service. Dell Computer Corp. and other computer manufacturers have dedicated Web sites for high-volume users, for example; chemicals and forest-products companies are following their lead. Airlines provide their most frequent flyers with special phone numbers, check-in services and a higher level of responsiveness.
Enhance CapabilitiesTop-performing companies also make it a practice to alert customers to potential problems while those problems are comparatively small, contained and manageable. Such practices pay the dividend of building customer trust and hence loyalty. A case in point: A French bottled-gas company saw its customer defection rate reduced by 50 percent after a six-month pilot program that anticipated and addressed service delivery problems. (In addition, net profit is projected to increase by $20 million over five years.)
Motivating and Rewarding Employees
Just as important to profitability is the ability to motivate and appropriately reward the people involved in customer relationship management. This isn't just "showing them the money." Often the rewards that make the difference are more psychic in nature.
Sprint PCS, for example, rewards strong sales performance with rotating assignments to coveted special projects. Intel augments its stock options, profit sharing and performance bonuses with a host of achievement awards and eight-week paid sabbaticals for employees who spend seven years with the company. At Air Products and Chemicals, James McFadden, director of strategic accounts, told us that the company pays competitively but "just as important are the respect and management access that the top-performing salespeople get."
Meanwhile, even financial rewards get more creative for customer-facing staff in high-performing companies. An example is Charles Schwab, where customer teams are paid salaries plus bonuses, not commissions; bonuses are based on customers' service experience and overall asset growth.
Converting Information into Insight
The third CRM capability in our study is strictly related to the new economy-the ability to take the overwhelming amount of transaction data and other information companies now capture about customers and transform it into real insight. The highest-performing companies give their frontline employees quick, easy access to critical data—purchases, contact history and product inquiries, as well as demographic and lifestyle data. For example, Mercedes-Benz has built a sophisticated database of 10 million customers across Europe to support dealer activities, customer assistance, marketing analysis and pre-launch targeting. Telenor Mobile, Norway's leading telecom, IT and media company, has armed every member of its sales organization with all the information needed to manage a customer's complete sales life cycle.
Other top performers even share information with channel partners outside the organization. This practice has become a primary way to differentiate companies within the communications industry, to the benefit of market leaders like U.S. Cellular (for a related article, see "What are telcos waiting for?"). The common basis of understanding helps everyone work together to better serve the needs of individual customers.
Attracting and Retaining Personnel
In Fortune magazine's 1998, 1999 and 2000 listings of "The 100 Best Companies to Work For," Southwest Airlines ranked in the top four, an admirable achievement that translates into easier employee recruitment and very low turnover-and great performance in customer relationship management.
Best-practice companies attract the best people by targeting specific traits, often including passion for the product or service. Herb Kelleher, chairman of Southwest Airlines, put it this way: "We would rather have somebody with less education and experience but with a great attitude."
Although leading companies recruit continuously, they appear to resist pressure to fill positions with candidates who are less than the best. Sprint PCS spent 12 months finding a sales manager to launch its Chicago office.
Successful companies also focus on keeping their people longer. It makes sense: Having the same people work with a customer or group of customers gives them an opportunity to develop deep insights and cultivate long-term relationships, which tend to bring more value for both parties.
Attracting and retaining employees "is an art, and you have to do it one person at a time," according to one high-tech executive we interviewed. Still, some practices crop up with regularity.
One strategy is to engineer a steady career progression over the long term, rather than a fast start followed by a mid-career snooze. Another is to create channels allowing feedback to flow both upward and downward in the organization. People feel more of a stake in a company when they feel they have more of a voice.
Building Selling and Service Skills
The best-performing companies train and coach their people in a broad set of skills. These skills include not only using new CRM software and traditional basics like writing persuasive letters and delivering compelling presentations, but also less obvious skills like listening empathetically, handling tough questions and complaints, and negotiating successfully.
Just as important, high-performing companies conduct such training in more effective ways. Rather than traditional classroom settings, they tend to favor "action learning" techniques, which immerse learners in simulations of customer situations and give them the opportunity to apply new techniques in a safe but realistic environment. (For a related article, see "Old dogs, new tricks," Outlook, Vol. XII, No. 1, January 2000).
A large pharmaceuticals company took this approach to new heights when it rented out the entire San Antonio Alamodome to train its people to sell and support an important new drug. The facility was outfitted as a representation of the world—complete with doctors' offices, HMO boardrooms and more—in which the company's people would have to operate effectively starting on day one of the rollout.
Finally, the companies that have the best success in imparting new skills to their people are also the ones most concerned with measuring that success. It's a thorny problem to measure the performance of a skills-building program, but the constant effort to do so seems to keep these companies' training staffs focused on delivering results.
To be sure, not every business is the same, and these five capabilities do not necessarily represent the five areas that will produce the highest returns for your business. The returns projected from improvements in these areas assume current average performance; therefore, there is room for an incremental investment to yield significant improvement.
Of course, any given company can diverge from our general findings. Understanding the true impact of, say, a 10 percent improvement in customer service capabilities depends on first knowing how your current capability stacks up against your industry competitors.
To help companies identify those CRM capabilities that will provide them with the biggest payoffs, Accenture has constructed a straightforward self-assessment tool that allows a company to find where its CRM gaps are biggest, and therefore where its priorities for new efforts should be placed. With better insight into probable returns, management teams can proceed with confidence. (For more information on the tool, e-mail [email protected].)
The findings of our study couldn't come at a more opportune time. Competition is increasing in every major industry. New technologies are rapidly changing the realm of what is possible in customer contact, care and insight. And customer expectations for quality, service and value are rising daily.
As our research demonstrates, CRM capabilities already account for roughly half the difference between business winners and the rest of the pack. In the very near future, customer relationship management will be more important still and it could be your company's greatest strength.
Mark Wolfe, a partner heading the Atlanta-based Accenture Business Launch Centers, is the lead strategy partner within the firm's global Customer Relationship Management group. Mr. Wolfe led a six-industry research series on CRM capabilities; the results of this work in the communications industry has been published internationally.
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