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Mr. Shiller


c Sara Delach

 Sept. 16, 2010

  Recommendation of Dow Chemical as SAQ¶s Best Strategic Pick

To assist you in choosing the cover company for SAQ¶s year-end issue, I compiled a strategic
analysis of the Dow Chemical Company. I recommend Dow as best strategic pick because of its
ability to maintain strategic advantage in the specialty chemical market. This ability stems directly
from Dow¶s strategy to seamlessly incorporate its three main capabilities into an overarching
focus on helping stakeholders, whom Dow refers to as its ³Human Element.´1 Exhibit 1 outlines
these capabilities and their connections. To understand Dow¶s strategy, I¶ll outline how Dow
derives competitive advantage from its main capability, innovative research, and how this research
supports its other two core capabilities, manufacturing and product diversification.

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The center of Dow¶s dynamic strategy and organizational structure is its emphasis on innovation
through research. As its most recent 10-K report boasts, Dow invested $1.6 Billion in Research
and Development (R&D) in 2009 alone.2 Innovative research is the vital point upon which Dow
balances the interests of its stockholders and its stakeholders. As Dow proclaims on its website,
³our innovation engine sets the stage for delivering long-term value to our stockholders while
maintaining high standards of social, ethical, and environmental performance.´ 3 As this
illustrates, Dow¶s research doesn¶t center on the most profitable ideas but rather the most valuable
solutions to social, ethical and environmental problems. It concentrates on stakeholder, not just
shareholder, problems.

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Dow carries out its vision ³[t]o passionately innovate what is essential to human progress´3 though
constant consideration of the company¶s human element: its stakeholders. The promotion of the
importance of the human element, as depicted in a current Dow advertisement in Exhibit 3, aligns
Dow¶s commitment to safe products with its R&D focus on finding sustainable solutions to the
stakeholder¶s problems. With 52,000 employees in 37 countries, R&D naturally evolves to focus
on improving their personal lives.4 This focus spurs growth within the communities of Dow¶s
employees. Currently, Dow dedicates itself to philanthropic ventures in communities worldwide,
including research on water purification solutions and sponsorship of the 2010-2020 Olympics.5
As its research evolves continuously to find sustainable solutions to human problems, it readily
lends itself to strengthen the competitive advantage created by Dow¶s other two core capabilities,
reliable manufacturing and diversified product lines.

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Marketing mainly to large corporations, Dow stresses reliability and directness in its production
process. Knowing that time-to-market is vital to its customers, Dow constantly innovates its
vertically integrated processes to increase efficiency. Vertical integration allows Dow to keep its
high standards of safety throughout each product¶s production, thereby adding value for its human
element. It has also incorporated its energy technology research to improve the efficiency of its
manufacturing processes. This energy research has since earned accolades for Dow, as it has
drastically reduced Dow¶s energy consumption, aligning Dow further with its stakeholders at the
community level.5 The resulting reputation of reliability serves to differentiate Dow in several of
its more high-risk product markets, such as specialty chemicals, and allows Dow to actively
pursue its vision ³[t]o be the most profitable and ›
   science-driven chemical company in
the world.´3 Yet, specialty chemical products are not Dow¶s only strength.


 
 


   



R&D and vertical integration facilitate Dow¶s ability to maintain an incredibly varied product line.
With solid profit generated in eight operating segments, as proven in Exhibit 3, Dow distinguishes
itself strategically within these disjointed markets and cuts down the risk its takes on in each.
Innovative R&D serves to continuously develop each operating segment to keep the competitive
advantage Dow has in each market.6 R&D gained from acquisitions also give Dow the ability to
follow breakthroughs in technology. Take for example the recent acquisition of Rohm & Hauss7
completed in 2009, which supplied Dow with key resources to make it the leader of the specialty
chemicals market. With its focus on product safety, Dow¶s leadership benefits everyone affected
by this market, especially consumers. The specialized knowledge Dow gained from this
acquisition highlights further its value proposition of reliable products and strong R&D in the eyes
of its industrial customers and human element stakeholders.

I trust this strategic analysis of Dow will help you in choosing SAQ¶s top strategic company of the
upcoming year. I look forward to reading the issue upon its release. I can be reached by email at
smd5s@virginia.edu if you have further questions.