Du Pont: the Birth of the Modern Multidivisional Corporation
Du Pont: The Birth of the Modern Multidivisional Corporation
HARVARD BUSINESS SCHOOL August 2008
RICHARD S. TEDLOW DAVID RUBEN
The year 1919 should have been a very good one for E. I. du Pont de Nemours and Company. World War I had blessed the 117-year-old, Delaware-based explosives manufacturer with the kind of booming growth that only an arms-maker in a global conflagration can dream of. The company had then leveraged this wartriggered glut of cash, plants, and personnel to accelerate its long-planned expansion into dyes, paints, plastics, and other new chemical-related ventures. Du Pont believed that transforming itself from singleindustry explosives firm to diversified chemical combine would prove a winning strategy in the post-war era. Except it didn’t work out that way. Du Pont’s new lines performed poorly. Profits in plastics plunged. Despite the investment of millions of dollars, the dye operations lost money. So did the company’s chemical ventures. Paints and varnishes were a particularly troubling area. Du Pont had expected that the economies of scale made possible by its large size and vertical integration would quickly propel it to leadership in an industry made up mostly of small, nonintegrated firms. And in fact sales had soared but so had losses. In 1919, gross paint and varnish sales rose 38%, to $4 million, from the previous year, but losses, nearly half a million dollars, were up an even greater 52%. “The more paint and varnish we sold, the more money we lost,” noted an internal report. Du Pont’s new ventures were lagging not only the company’s own targets, but the performance of its competitors in those industries, as well. 1919, for instance, was one of the most profitable years ever for many of the smaller paint companies that Du Pont had expected to surpass. The problem seemed to be selfinflicted. But what was it? To find out, Du Pont formed a committee to assess the situation. It was made up of junior executives with operational
HARVARD BUSINESS SCHOOL August 2008
RICHARD S. TEDLOW DAVID RUBEN
The year 1919 should have been a very good one for E. I. du Pont de Nemours and Company. World War I had blessed the 117-year-old, Delaware-based explosives manufacturer with the kind of booming growth that only an arms-maker in a global conflagration can dream of. The company had then leveraged this wartriggered glut of cash, plants, and personnel to accelerate its long-planned expansion into dyes, paints, plastics, and other new chemical-related ventures. Du Pont believed that transforming itself from singleindustry explosives firm to diversified chemical combine would prove a winning strategy in the post-war era. Except it didn’t work out that way. Du Pont’s new lines performed poorly. Profits in plastics plunged. Despite the investment of millions of dollars, the dye operations lost money. So did the company’s chemical ventures. Paints and varnishes were a particularly troubling area. Du Pont had expected that the economies of scale made possible by its large size and vertical integration would quickly propel it to leadership in an industry made up mostly of small, nonintegrated firms. And in fact sales had soared but so had losses. In 1919, gross paint and varnish sales rose 38%, to $4 million, from the previous year, but losses, nearly half a million dollars, were up an even greater 52%. “The more paint and varnish we sold, the more money we lost,” noted an internal report. Du Pont’s new ventures were lagging not only the company’s own targets, but the performance of its competitors in those industries, as well. 1919, for instance, was one of the most profitable years ever for many of the smaller paint companies that Du Pont had expected to surpass. The problem seemed to be selfinflicted. But what was it? To find out, Du Pont formed a committee to assess the situation. It was made up of junior executives with operational