Adapting to Pricey Oil
Energy costs pushed Air Products to transform its business
But consider NF3, a crucial chemical for producing flat-panel TVs and monitors. Air Products is the No. 1 producer, shipping the gas from Pennsylvania to Asia in 18,000-pound containers, compared with the 40-pound cylinders a decade ago. The company will expand capacity 25 percent later this year with a new plant in South Korea. The price of NF3 has been falling, but Air Products so far has compensated by simply selling more.
"That works as long as volumes are growing substantially," notes Matthew Warren, a Morningstar analyst. "But it's a fine and delicate balance." Warren thinks risky down cycles for Air Products are still possible, especially in economic downturns. But he is quick to praise the company's overall strategy. "The moves they've been making make a lot of sense," he says. "It should help on returns on capital and reduce cyclicality. And the market's clearly rewarding it."
Now, Air Products faces more transition. Jones is retiring at age 56 while passing the baton to McGlade (three years his junior). McGlade, who like Jones has spent his whole career at the company, certainly faces challenges—including the sale of the last chemical division Air Products is trying to jettison, which hasn't yet found a buyer. But McGlade intends to follow through on tough choices. The key to future success, as he sees it: "Our ability to honestly look at the portfolio and to make decisions on their potential and the value we can bring, versus a love affair with any particular business."
How to Deal With Change
People resist change only when it involves the possibility of loss, says Ronald Heifetz, cofounder of the Center on Public Leadership at Harvard's Kennedy School of Government. In other words, people resist change often—and corporations avoid potentially painful transitions. A better leadership approach involves some simple principles.
Face reality. Air Products executives John Jones and John McGlade, addressing the issue by E-mail, say external events like 9/11 or Hurricane Katrina can drive change in uncontrolled ways, and executives must react quickly. "Don't fall in love with any one business or strategy," the executives advise, "because you just might have to change it tomorrow."
Prepare your people. Gordon Quick, coauthor of The Enlightened CEO, says companies sometimes spend so much time charting a new course that they forget to let employees, customers, or shareholders in on what's happening.
Watch out for traps. Heifetz says companies often blame outside forces, or delay by hiring a consultant, or tinker. A new accounting system won't help a business that at its core no longer makes sense.
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