"You can't get to be a 200-year-old company by doing the same old thing year after year," declares DuPont Chairman and Chief Executive Officer Charles O. Holliday Jr. That is why DuPont morphed in the past, and why today it is transforming itself once again.

	CHARGING AHEAD CEO Holliday (right) and Chief Science & Technology Officer Connelly look to DuPont's next 200 years. PHOTOS BY PETER CUTTS

In February the company realigned its business into five growth platforms, and it is now forming a subsidiary of its traditional textile fibers and intermediates business. The new platforms are "more tightly focused on markets and technologies," Holliday says.

Without the textiles business--it may be spun off--to weigh it down, Holliday expects the company will be able to meet its goal of increasing revenues by 6% per year and earnings by 10% per year. "My guess is that coming out of this recession in 2003, we'll grow a whole lot faster.

"What we've been working on," he explains, "is the transformation of the company." Aiding that effort will be DuPont's science might, led by Senior Vice President and Chief Science & Technology Officer Thomas M. Connelly Jr. And what he has been doing to complement the transformation is "reenergizing our innovation process and reinvesting in research to create those unique products that will advantage DuPont going forward," Connelly says.

Holliday, 54, an industrial engineer with a degree from the University of Tennessee, Nashville, became chairman of DuPont three years ago. Since then he has made a number of changes at the firm, leading up to the February realignment.

What he has done most of all is to reduce DuPont's girth. Sales peaked in 1997--the year before he became chairman--at $45 billion. If a DuPont observer were to exclude the sales of its newly dubbed Textiles & Interiors subsidiary and just count the sales of the firm's five growth platform businesses, DuPont today would be a rather svelte company with 2002 sales of just $20.5 billion. To get to this level, since 1998 DuPont bought or sold some $50 billion in assets.

These are the highlights: The company finally ended its 18-year romance with the oil business in 1999 by completing the disposal of Conoco. Some polyester assets were sold off to former Mexican partner Alpek; still others were put into a joint venture with Turkey's Haci Omer Sabanci. Polyester films went into a joint venture with partner Teijin.

Last year, the company sold its pharmaceutical operations to Bristol-Myers Squibb, netting some $7.8 billion. Pharmaceuticals were sold, Holliday says, because competitors had become so large "we just weren't going to get there to be competitive."

DuPont at a glance Headquarters: Wilmington, Del. Sales: $24.7 billion Earnings: $1.3 billion Capital Spending: $1.5 billion R&D Spending: $1.6 billion Employees: 79,000 Growth Platforms (% of total sales), major products: * Electronics & Communications (10%)--electronic materials including display and imaging technologies; fluoropolymers, fluorochemicals, and fuel-cell components * Performance Materials (18%)--engineering resins, packaging, and industrial polymers; DuPont's interests in the DuPont Dow Elastomers and DuPont Teijin Films joint ventures * Coatings & Color Technologies (18%)--automotive coatings and titanium dioxide white pigments * Safety & Protection (14%)--Kevlar p-aramid bullet-resistant and Nomex m-aramid fire-resistant fibers; Tyvek spun-bonded building wrap, polyvinyl-butyrate glass interlayer, and Corian hard surfaces * Agriculture & Nutrition (16%)--crop protection chemicals, Pioneer Hi-Bred seeds, Protein Technologies soy protein, and Qualicon food pathogen detection systems Subsidiary: * Textiles & Interiors (24%)--nylon, polyester, and spandex fibers, as well as the chemical intermediates to produce them Website: http://www.dupont.com Note: Figures are for 2001.

AT THE VERY BEGINNING of this year, the company started the ball rolling on a plan to separate its slow-growth textile fiber operations from other businesses now organized into five growth platforms.

DuPont has made only two major purchases since Holliday began his tenure as chairman: In 1999, the firm bought the 80% of seed producer Pioneer Hi-Bred it did not already own for $7.7 billion. And, in 1999, the company also completed the purchase of the Herberts coatings business from Hoechst for $1.9 billion.

The slim, trim DuPont of today has $5.8 billion of cash on hand versus $1 billion in 1997. Not a trifling accomplishment since high raw material and energy costs and slumping domestic demand slashed DuPont's returns last year. Earnings dropped 57% in 2001 to $1.3 billion compared with the year earlier. Still, the company's earnings exceeded those of Dow Chemical, now the largest U.S. chemical producer in terms of sales (C&EN, Feb. 25, page 19). The earnings leadership, Holliday says, means more to him than being the largest U.S. chemical producer.

While some may have a certain sentimental attachment to DuPont's fibers business, Holliday does not. "If you go back, we created the synthetic fiber industry," Holliday says in a matter-of-fact way, referring to Wallace H. Carothers and his group's work just before World War II in developing nylon fiber.

But to put it kindly, Holliday says the textiles business has "become much more Asia-centric" than DuPont's other businesses. Many of DuPont's U.S. and European textile customers have gone out of business or cut back because of the flood of imported textiles.

Others aware of the trend left the fiber business as well, Holliday points out. Hoechst, for instance, sold its Trevira polyester business to a partnership of Koch Industries and Mexico's Imasab in 1998. After Akzo Nobel bought Courtaulds in 1998, it combined the two companies' fibers businesses under the name of Acordis and sold them off to management buyout firm CVC Capital Partners in 1999.

AND NOW IT'S time for DuPont to separate from its textile fiber businesses. They've been hemorrhaging for years as DuPont closed some plants, took on joint-venture partners, and cut employment. Holliday expects to take a year or so to set up DuPont Textiles & Interiors as a separate subsidiary under the leadership of Chief Operating Officer Richard R. Goodmanson. Holliday isn't ready to say what will happen next.

DuPont Textiles & Interiors may continue to operate as a separate subsidiary or it may be sold off to the public. Then again, Holliday could decide on something in between.

"We could sell 20% to the public and keep the other 80% for a long time," Holliday says. DuPont did that with DuPont Photomasks, selling an initial 30% to the public in 1996. Today, DuPont still owns 20% of the company, whose products are used to make integrated circuits. The firm used a similar mechanism to first take Conoco public and then arrange a tax-free transfer of shares to DuPont shareholders for the balance.

"No one thinks Holliday is making a mistake by separating DuPont Textiles & Interiors from the rest of its businesses," says John E. Roberts, an analyst and senior vice president of New York City-based Buckingham Research. "The textiles business generates significant cash flow, but not lots of earnings." If DuPont were to spin off the textiles subsidiary, it could place a significant amount of debt with the unit and leave DuPont with very little debt of its own, Roberts suggests.

In a recent report to clients, Deutsche Banc Alex. Brown analysts John C. Moten and Edlain S. Rodriguez say they also like the idea. "DuPont's recently announced plan to separate its fibers and nylon businesses gives us greater confidence that the company is serious about achieving its stated growth goals." They add, "We expect further portfolio pruning over time as the company narrows its business focus."

Holliday, though, says he is not planning any major divestitures within the business platforms. Some businesses may be pruned here or there, and the company could buy some businesses, too. "Don't think about acquisitions just in terms of bulking up," Holliday adds. "We will be bringing in really unique technology.

"For example, we bought a majority stake in Polar Vision last year--the successor company to the Polaroid sunglasses business." The company provides laminate filters that can enhance optical displays. The filters are very expensive, Holiday says, and are now mostly limited to critical military applications.

"If we could find a way to make these filters less expensively, we could apply them to our newest displays. This display market is an $80 billion-a-year business. There is room enough for us and Sony both," Holliday jokes.

DuPont bought Polar Vision to enhance the DuPont iTechnologies business unit, now a part of the electronics and communications growth platform. The future for DuPont is clearly in its five new business platforms, which also include performance materials, coatings and color technologies, safety and protection, and agriculture and nutrition. To choose them, Holliday says, DuPont executives asked themselves: "Where are DuPont's strongest capabilities? Where are the large market opportunities? Do we have the people to exploit the opportunities? "

	ARCHITECTS Holliday (top) and Connelly plan DuPont growth through science initiatives.

"It took us over a year to look at what our strengths are and who we would compete against. It was a very rigorous process," Holliday says. The business platforms "will depend on traditional chemistry for a long time to come," he adds, but with time he expects advances in biotechnology will affect many of them.

"We've got the largest biotech materials research program in the world. And we've got either the largest or second largest plant science program in the world. So we are just going to keep learning from that," he says.

"Our biobased materials program is looking at plant platforms and microbial platforms," says Connelly, 49, a chemical engineer with a Ph.D. from the University of Cambridge. What DuPont calls Bio 3G, its biobased 1,3-propanediol feedstock for the next-generation polyester polymer Sorona (also known as 3GT), "is an example of microbial biotechnology based on manipulation of industrial Escherichia coli strains" that starts with corn glucose.

But DuPont can also use its understanding of microbes to design biocompatible materials, Connelly says, such as the company's Biomax polyethylene terephthalate-based line of biocompostable polymers. "Although these are synthetic polymers, our biotech capability allowed us to design them for compostability."

BUT HIGH ON Connelly's list of order is getting DuPont's 5,100 scientists and technology experts to increase the number of new products they annually put on the market. Connelly's goal is to help DuPont derive 33% of sales from products introduced within the past five years. "We are something under 20% now--18%, I would say."

Competitors boast of a much higher percentage of sales from new products. 3M, for instance, claims that it gets more than 33% of sales from new products that have been on the market for four years or less. Like DuPont, 3M spends more than 6% of sales on R&D. Its target is to get 40% of sales from products introduced within the past four years.

Connelly says DuPont's goal is a realistic one for the company now. "It's a rolling five-year metric," he explains. "So even if we perform at the new level next year, it still closes only one-fifth of the gap. It will take us a few years to achieve it, but I think you will see steady year-on-year progress toward that goal."

DuPont isn't the only company struggling with R&D productivity, Buckingham Research's Roberts says. Despite its best research effort, some things are just out of DuPont's hands, he says. The company or its competitors can't do a whole lot about the regulatory delays affecting the introduction of biotech products.

In other cases, it can do something to speed products to market. Roberts cites the recent DuPont and Monsanto agreement to end a long and acrimonious dispute over herbicide-resistant crops and gene technology (C&EN, April 8, page 9), as a spur to future innovation and growth.

Until recently, DuPont was not so much concerned about introducing new products as it was interested in using research to cut costs. "During much of the 1990s," Connelly says, "we focused much of our research on increasing the productivity of our processes." While he acknowledges that "that focus is starting to pay off," DuPont believes the time is right for product innovation.

THE EFFORTS TO boost revenues and profits do not depend solely on the efforts of DuPont scientists. "We are counting on emerging geographies and marketplace initiatives to contribute to growth at DuPont," he adds. "But our chairman has made it very clear that he believes DuPont is a science company and that science needs to play a prominent role in delivering growth."

When Connelly took over as chief technology officer in September 2000, "too high a percentage of our work was focused on relatively short-term projects improving familiar technologies in familiar market spaces. Although we are ever mindful of the need to deliver today, we must also understand the need to reinvest for growth in the future," he says.

The company is putting resources into what it calls its Apex program. "It is really our long-term research effort that exists outside our business entities," Connelly explains. "Keep in mind that more than 80% of our technology resources are allied with our business units." The balance goes to the Apex projects and research services that can serve a variety of DuPont's businesses.

"The Apex program is longer term research involving development of technologies new to DuPont and where we are pursuing new market spaces. In many cases, these are projects new to the world, where we hope to position DuPont differently--not just as a producer of unique materials, but as a producer of components, assemblies, and devices. In some cases, DuPont could be a provider of services associated with those new materials," Connelly says.

Efforts to develop organic light-emitting diodes (OLEDs) for telephone and handheld device displays began in the Apex program. DuPont's research into fuel-cell components--starting with its Nafion perfluorinated ion exchange membranes and including work on developing catalysts, electrode assemblies, and liquid-crystal polymers for conductive plates--also started in the Apex program. "And they are now making their way through our business units and into the marketplace," he adds.

The focus on innovation and technology has meant a large turnover in leadership in the labs. "We've had a turnover of close to 40%," Connelly says. The turnover has been necessary to bring focus, intensity, and an orderly process "to an activity whose outcome may be uncertain." And that has meant putting people "comfortable with driving growth-related research and comfortable with the marketplace" in positions to direct research.

Part of being comfortable with the marketplace will mean working on new products and projects with people outside of DuPont. "In the future, very few companies will do something totally on their own," Holliday says. "University relationships will be key."

One such relationship is a five-year agreement to develop biobased materials with Massachusetts Institute of Technology. DuPont and MIT have undertaken 17 projects and DuPont has funded them with a multi-million-dollar commitment, Holliday says. "We own all the intellectual property as it comes out. They are solving new problems."

While he won't go into too much detail about the effort, Holliday does say that one of the projects involves a wound closure material that could be used internally during surgery. The material would dissolve after it's done its job. It's unlikely to involve a lot of material, he says. "Think little quantities, but very expensive." Holliday does not expect all 17 projects to be successful. "If three of them work, that would be fantastic," he says.

"Too high a percentage of our work was focused on relatively short-term projects improving familiar technologies in familiar market spaces."

CONNELLY, TOO, is high on cooperative efforts. He credits work with scientists at the University of North Carolina, Chapel Hill, in the development of a newly commercialized process to manufacture fluoropolymers with supercritical carbon dioxide. The process--now operating at a new $40 million unit in Fayetteville, N.C.--provides Teflon wire and cable insulation with improved performance and processing capabilities while producing less waste than traditional water-based polymerization.

DuPont also acquired Santa Barbara, Calif.-based Uniax in 2000 to gain expertise in OLEDs. That acquisition, Connelly says, "recognizes that collaboration is a way to move faster. In some cases, it's a way to do things we simply couldn't do on our own." Uniax gave DuPont access to conducting polymer technology developed by Alan J. Heeger and licensed from the University of California, Santa Barbara. The OLED market, which was $3 million per year in 2000, is expected to grow to $700 million by 2005.

Such an acquisition not only breathes new life into DuPont's research capabilities, it also brings in new talent. And even during the economic slowdown while DuPont laid off workers in some units, it has kept up hiring new scientists. It's not just an effort to keep the numbers up in a company that emphasizes research. "The steady flow of young researchers with their ideas and enthusiasm is a key part of maintaining the vitality of a technology organization," Connelly says.

The tough economy has taken its toll on DuPont, Holliday admits. And when the economy forces changes and affects morale, Holliday says the only thing to do is "give people real data. We've got to tell them when they are winning and when they are not. With some of these changes, we are a little concerned because we can't answer all our employees' questions. These are challenging times. It's been a tough economy, and there just has been no way around it. I think we've done well, but we could always do better."

"A lot of companies in our industry are pretty financially shaky" during what he calls "the worst recession in 30 years." And so "having financial stability is very important." But because of the strong financial position DuPont is in after the series of portfolio sales and asset rearrangements, employees and investors "don't have to worry about whether our company is going to fold tomorrow." The five growth platforms will position DuPont for a sustained surge in profits for some time to come, Holliday says.

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