Diversity in NOVA Chemicals

Jeff Lipton recently delivered a speech about diversity and the key role that it plays in organization's ability to innovate. The speech, which was given to GlaxoSmithKline's Pittsburgh area employees, highlighted the importance of diversity to NOVA Chemicals' ongoing success. Below is a transcript of the speech.

Presentation by Jeffrey M. Lipton to GlaxoSmithKline

Wednesday, August 3, 2005

Thank you for that introduction George. I'm very pleased to be with you today and delighted to share some of my perspectives on diversity and its impact on innovation.

One of your GSK colleagues, Ernestine Harris, heard me address a group in Pittsburgh last year and she suggested that I come to speak with you today. I take every opportunity I can get to speak on this subject because I believe strongly in the power of diversity - and its importance not only to NOVA Chemicals, but to just about any organization I can think of, including GSK.

About 6 years ago, a group of us at NOVA Chemicals moved to Pittsburgh from Calgary, in Alberta, Canada. I'd like to share some stories about our experience moving here and a few examples from our business and my life that will illustrate why I believe there is value in diversity and how diversity is related to innovation.

Fundamentally, I believe we will not fully understand the world we're all dealing with today unless we hear diverse voices inside our companies, schools, and other institutions. It's also pretty clear to me that you cannot compete successfully in a global economy - unless you bring diverse views to bear on everything you do. I say that out of real conviction from both my business experiences and my personal life.

First, I should tell you a bit about my company, NOVA Chemicals. We are a commodity chemicals and plastics company, which means we make billions of pounds of basic materials like polyethylene and polystyrene that go into simple everyday products like foam cups, toys and trash bags, along with some higher value products that go into medical devices, sporting goods and hardware, like TV sets and automobiles. In fact some of the basic plastics we make are used to package GSK products - the cap on a bottle of Tums is made from polyethylene, as is the laminated layer inside tubes of your Aquafresh toothpaste.

Our manufacturing operations are spread throughout North America and Europe and our sales are global. To give you a sense of the scale of our business, we have about 4,000 employees and we expect our revenue this year to be just over $5 billion. So, our operations are large, although we are relatively small compared to chemical industry giants like Dow, BASF and our neighbors here, Bayer.

Now you might well ask yourselves, why should I listen to someone who works for a company that isn't anything like ours? A fair question. I certainly won't pretend to understand the complexities of your business or the issues you face and I'm sure many of them are different from NOVA's concerns. But my belief is that our companies have two very fundamental things in common.

First, both of our businesses are based on chemistry, the most under-appreciated of the basic sciences. I heard Gordon Moore, one of the founders of Intel, speak last fall and he enthusiastically acknowledged that the silicon chip that revolutionized modern life is entirely based on chemistry. Certainly the pharmaceutical industry in general and GSK's consumer healthcare business in particular is chemistry based as well. So, we're both part of the business of chemistry that contributes more than $500 billion to our national economy, employs more than a million people in all 50 states and is essential to everyday life for people everywhere.

In fact, our chemical industry association is so proud of our achievements in product development, safety and environmental protection - and candidly so tired of having the public give us favorability ratings down with the tobacco industry - that we're starting an advertising and awareness campaign this fall, called Essential2. It will help the public understand the contributions of chemistry based enterprises like GSK and NOVA better. So watch for it.

The other thing we have in common is that we both depend on innovation to survive. I understand GSK has over 15,000 people engaged in Research and Development around the world. Our efforts are much more modest in scale but we have over 10% of our people focused on R&D, perhaps a surprisingly large number for a commodity based company like ours.

We view diversity as being one of the critical enablers of innovation. In fact, in my experience the absence of diversity is usually a huge barrier to success and quite simply crushes innovation in an organization. People often ask me how we got to Pittsburgh so I'd like to take a couple of minutes to describe that transition for you because it is part of our diversity story.

In the late 90's after we were spun off from a big Canadian natural gas pipeline company, we found ourselves with our headquarters in Calgary - which is a long way from the majority of our customers and a long way from our investors. After a substantial amount of deliberation we decided to move our corporate offices. A group of 65 of our most senior people were asked to move to the Pittsburgh area where we already had a plant and a sales office.

Now, I would tell you that we had to sell the idea of life in Pittsburgh to the people we were moving and to their families. Imagine your reaction if George told you that he has a new opportunity for you. This new opportunity is in a far away place called Calgary which is in a foreign country and, by the way, our business isn't doing all that well and there is speculation in the press that we won't last long as an independent company.

That was the situation we found ourselves in as we sought to relocate our employees. People in Calgary didn't know much about Pittsburgh and what they thought they knew was mostly wrong. And Calgary really is a beautiful place with a booming economy - 2% unemployment, no sales tax and huge government surpluses. It's a little cold for 10 or 11 months of the year, but Canadians are used to that. So we really had to sell the idea of the move. And we did so very successfully. Over 80% of the people we invited made the move. And interestingly very, very few of our people have gone back to Calgary. In fact we now find it difficult to move people out of Pittsburgh.

Probably most comforting for our people and their families was the fact that we found a city that is welcoming and people who are friendly and interested in having us here. We feel completely at home.

I firmly believe that part of the power of our relocation to Pittsburgh has been the addition of more diversity to our company, which has helped us to be more successful. When I think about diversity, I don't just think about gender, and I don't just think about race, although those are obviously significant components of diversity. Diversity means a lot of things. It includes people with different educational backgrounds and work experiences, different nationalities, religions and different thought processes. Our recent history at NOVA is an example of the power of diversity, although our leaders and I would be the first to admit we have a long way to go to be where we'd like to be.

We started out in Western Canada and we weren't very diverse and we didn't do very well. The people in our company were mostly from the same area. They had gone to the same schools or worked for the same companies. As a result they tended to approach problems in the same way, and when they tried to build a successful international chemical business they failed - mainly because they could not understand how the rest of the world made decisions.

We have grown progressively more diverse in my nearly 12 years with the company, adding people from many different backgrounds, regions, nationalities and experiences. They came to us through recruiting and business acquisitions. I would also tell you that we have grown progressively and meaningfully more successful as we have gotten more diverse. And we continue to look for more diversity because we can't win without it. In fact, I tell folks at NOVA all the time that it's important not to have too many people like me at our company and for some reason most of them seem to agree with me on that point.

So where can diversity be leveraged, where is the value? A few examples from our corporate experience and my personal journey might be helpful. We work in an industry that is mature and traditional in some ways, but we also face turbulent global markets, fierce competition and constant, relentless change. We believe that we are staying in the game - and winning - because we know our core strengths and we embrace change. We continually apply new technology and look for better ways to do our work. We innovate or we fail. And to successfully innovate, you need the spark that comes from diverse individuals and teams of talented men and women.

I'm going to describe three recent examples of NOVA innovation that were enabled by different types of diversity. I hope they will be thought provoking. The first example is from our polyethylene business. Polyethylene is the largest volume plastic used in the world today - over 150 billion pounds per year. You see polyethylene in everything from grocery sacks and backyard toys to GSK product packaging.

In NOVA's first decade in the polyethylene business, which started in 1984, the company that licensed us the technology to make polyethylene made more money from our operation than we did. A lot more. So, we made a conscious choice to move from renting to owning technology, a company-changing effort for a business like ours. As the first step in that enormous effort we brought new people, ideas, and intellectual assets into our company through hiring and acquisition.

I often say that the effort to develop a new polyethylene technology is our biggest workforce diversity success story. Today, in contrast to the homogeneous group we started out with, the team at our 250 person Calgary research centre has about 80 staff who were born outside Canada and over 25 languages are spoken at the facility. That sort of diversity represents a significant transition for a modest sized company like ours and an incredibly valuable addition to our capability.

We also worked with a number of key university partners to bring additional diversity of thought to bear on the project. The goal was to use universities to identify new concepts that we could rapidly prototype in our labs. In 1990 we had only a couple of very limited university partnerships. Today we are funding work at 18 universities in 5 countries. And the result of bringing together all of those different views and perspectives is that we were able to bring forward a patented, commercialized, high product quality polyethylene technology for approximately one tenth the cost incurred by some of our huge competitors such as Exxon Mobil and Dow.

An interesting twist in the development of the new technology was the unexpected internal collaboration between the natural gas pipeline R&D team of our old company, and the polyethylene project team. One of the fluid dynamics experts in the pipeline team, a fellow named Umesh Karnik, had breakthrough ideas in modeling how liquids and gases flow. Those novel ideas helped us develop a very advanced chemical reactor design with exceptional mixing control.

Umesh was born and raised in India, has a PhD from the University of Ottawa in Canada and today he is leading one of our polyethylene research teams doing some very exciting joint development work with BP's chemical business, now called Innovene. The lesson we learned from this experience was that you can get very valuable ideas from unexpected sources. But to do that, you have to be willing to listen, willing to include people who represent different points of view and different competencies.

The second example I'll describe is a product called ARCEL, a sophisticated combination of two plastics, which when foamed has marvelous durability attributes and is used to package fragile items like consumer electronics. The product was first sold by one of our predecessor companies in the early 80's, but languished for many years with virtually no growth. Today, ARCEL is our fastest growing polymer product - sales have more than tripled in the last 2 years.

We are adding capacity at a breakneck pace at our Beaver Valley Plant just a few miles west of here. Since the year 2000, we have invested about $60 million at Beaver Valley and we expect this pace of growth and expansion to continue for several years, we intend to triple capacity again over the next few years.

So how did this explosion of highly profitable growth happen at a plant that has been running since WWII and in a product line that was almost invisible? In this case I believe the formula for success was to give a group of strong people a crisp business focus and stretch objectives, and then tap into the diverse thinking of our customers' customers.

We put one of our strongest young leaders in charge of the ARCEL business. He had spent the majority of his career in Europe and is now spending a lot of time in Asia, so he brings some broad thinking and experience to the business even though he is still under 40. We put some of our strongest scientists on the project to facilitate capacity expansion at a pace that the team couldn't begin to imagine when they started out.

In fact, Paul Arch, who was born and raised here in Pittsburgh and is one of our longest tenured scientists at Beaver Valley, was honored with a Carnegie Science Centre award for Advanced Manufacturing for ARCEL project work at a ceremony in Pittsburgh last spring. Leveraging diversity in the ARCEL project has come in a number of ways. Internally, we have linked all four of our research centres in North America and Europe to mobilize resources to accelerate the project. Those centres are in Calgary, Alberta, Chesapeake Virginia, Breda in the Netherlands and here at Beaver Valley.

Creating an environment that enables people to learn from each other despite all of the cultural, language and other differences is a challenge - not to mention the 8 time zones. Of course you face similar challenges at GSK since I understand your research facilities are in 11 countries. But clearly the most significant collaboration for ARCEL has been with our customers' customers, original equipment manufacturers such as HP and Dell. They have helped us understand the value of ARCEL and what we need to do to make it better.

As a result of those collaborations, we were able to better design the product to allow a smaller package to stand up to the rigors of an internet based economy that ends with the shipment of an individual item directly to your home.

Have you ever experienced the hassle entailed in returning a product purchased online, and have you given any thought to the costs associated with that? ARCEL delivers a lot of value by reducing and in some cases eliminating that return risk by protecting package contents better throughout the supply chain. But we wouldn't have thought of that value by ourselves. We're very good at making plastic. Our customers are very good at molding our plastic into useful shapes. However, we don't think like package designers and we certainly don't think like an electronics manufacturer. Our customers' customers brought the diverse thinking that allowed us to break ARCEL out of a 20 year long slumber.

Today we're working with new Asian partners who will help us make ARCEL more available in China, about three times as fast as we could possibly do it ourselves. We are also expanding our thinking about potential applications for this old product. We feel we've turned a nice sows ear into a beautiful silk purse with a combination of technology and marketing all enabled by a diverse and talented team.

The last business example I'll refer to very briefly is unfolding now, so I can't share much in the way of detail. But it involves building low cost homes that are sturdier and have a lot more insulation with partners in Chile, Mexico and potentially India. We are building them using plastic as the framing system instead of wood, and they are put up with low skill labor. Now I'd call that truly out of the box thinking.

Our team in this case is led by a man who was born in Cuba. One of his top team members is a woman who grew up in Brazil, is now a Canadian citizen and works here in Pittsburgh on accelerating our business development. We're working with partners in Chile and Mexico who bring local knowledge and perspectives. So we continue to look for profitable ways to leverage the diversity we are beginning to develop.

Let me close with some personal comments about the source of my interest in diversity and the one vital element that I think is necessary to make diverse people productive in an organization. I was born quite poor, to an immigrant family in the Bronx. I lived in an apartment building with six floors and just about every ethnic and religious background you could think of.

When people think about the Bronx, they often think about a tough place, maybe a dangerous place. It certainly had some of that when I was growing up - and it still is a scary place to many. But people never locked their doors in our apartment building, we all got along pretty well and looked out for each other. We were almost like a big family. It wasn't until I left my neighborhood that I got to learn about the risks and problems associated with being different.

I started going to Hebrew school when I was about 6 or 7. It was only four blocks away but I had trouble getting there without getting beaten up. The guys in that neighborhood saw me loaded down with schoolbooks, so I couldn't outrun them, and I sometimes had to fight to get to school. It took a lot of effort to get there, and then get home - so it was hard to really concentrate on my lessons.

As I went off to a special science high school that was 3 bus rides away from my neighborhood - I found myself in a large school with children mainly from professional families. The only thing that allowed me to be accepted despite my black leather jacket, was the fact that I was a pretty decent varsity athlete.

At grad school I was the youngest out of 800 entering students and several years younger than almost all of my classmates. Again, I felt very different - and alone. It took me about 3 months to say my first words in a classroom - and half of our grades were based on class participation.

During my 29 years at DuPont, I was the only MBA and one of very few members of my religion in Senior Management, and I felt different there too.

When I started with NOVA as the Chief Financial Officer in Calgary, I was seen as an overly aggressive American - and was feared by employees for a good while. Not a comfortable feeling - for me or them. So where did all this experience and this discomfort take me? To the conclusion that the key to making different people more productive is to make them feel at home. Did you ever wonder why even professional athletes have a much better record playing at home than when they are away? It takes a lot of energy to overcome not feeling at home.

If people in an organization expend a lot of energy to try to fit in, to overcome their differences - instead of being valued for those differences, they have a tough time being successful and the organization gets a diminished contribution. If, on the other hand, everyone feels at home, and valued for their differences in an organization, everyone's energy gets focused on the work - and everyone feels safe enough to make creative contributions.

So what do we do at NOVA? We try hard to value differences and different people. We ask people frequently - how do you feel in this organization, are you valued? Are you respected? We do this informally and through employee surveys. Our voluntary corporate turnover has been around the 2-3% level since we started up our independent company in 1998 - and that's with a lot of pressure on our organization to perform and continually reduce costs. I think we're doing a few things right.

But, there is one area in particular that we haven't succeeded in - we haven't had enough turnover. And we haven't hired enough new employees to create large enough groups of diverse people at the top levels of the organization. So it's hard for some people in the company to see folks like themselves at every level, and everywhere they look. That's an area we have to work on and we therefore keep diversity directly in front of us whenever we make hiring or promotion decisions. We all acknowledge we certainly have a ways to go.

To me it's all pretty straightforward - the ultimate consequence of building visible diversity - all through the company and at every level of leadership - would be cementing that sense of people feeling at home - feeling that they truly are owners of our corporate destiny and that they are valued for who they are.

So that's our story. I hope it raises some questions for you, and I hope it can make some small difference in how you'll think about diversity, creativity and innovation in the future.

Thanks for having me today.