In order to survive and cope with the current trends, business transformation is a must. Unless it undergoes such a significant yet challenging episode, it can continuously improve and not die out. Victoria Meyer talks with Joseph Gullion, Chief Commercial Officer at SI Group, to share their story of profound transformation that pushed them to their limits. He talks about how they struggled with the COVID-19 pandemic and the Texas winter storm, his move from a major distributor to a producer-supplier model, and their approach to the trend of digitalization. Joey also touches on the three most important pillars that impact business transformation, as well as the legacy he wants to establish for both himself and their company as a whole.
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How To Handle Business Transformation With Joey Gullion, CCO At SI Group
I am delighted to have with me Joey Gullion, Chief Commercial Officer of the SI Group. The SI Group is a privately held performance additives and intermediates company that operates globally around the world.
Joey, welcome to the show.
Thanks for having me. It's good to see you again.
It's been an interesting year around the globe. We are into this global shutdown or the real recognition of the pandemic. How has 2020 been for you, SI Group and your markets?
It's interesting that I got on a plane to go home for a short weekend to see my son play a golf tournament that he had scheduled. I was at the airport on a layover on the way back to Texas from Upstate New York and got the call that we were going to shut down the office. We were doing that to protect our IT group because we were rolling out SAP in Asia-Pacific and then to India. To your point, here we are. It's been an interesting year.
As with any team, there's nothing like a crisis to drive focus and bring people together.
For SI Group specifically, we started a commercial transformation. We were confronted with whether to complete that transformation and re-organization in the middle of COVID where we couldn't see one another. We decided to do it. We saw the surging demand as everybody was a little freaked out about their supply chain with COVID. It was hung on in conserved cash. It was that way through the summer. Our team did an excellent job at that. In the fall, we started to see signs of recovery. There was a roaring recovery in Q4 and into the start of 2021.
Our largest asset globally was in Freeport, Texas. We experienced the challenge of the winter storm there. Now, we're fighting through that. As with any team, whether it's sports or anything, there's nothing like a crisis to drive focus to bring people together. For us, it's accelerated a lot of what is a transformation going on at SI Group. We've had to adapt fast and the team had done an excellent job at that. We were pleased with how we did in 2020. We were off to a good start in 2021. No shortage of excitement is the easiest way to describe it.
What are the key elements of this transformation? With you and David Bradley, the CEO, both being fairly new in SI, you're there to make a difference. How is that playing out?
It starts with our vision statement about wanting to be a global performance additives powerhouse. We intentionally chose the word "powerhouse." It sets a standard for us that at times feels out of reach, but it's also a north star. It throws benchmarking yourself out the window. You've got to think, "What am I going to do that's so different from everybody else that's going to establish this market leader?" That's the journey we're on. It’s a journey of building capability. It starts with a global operating platform. In the middle of COVID in 2020, we've rolled out SAP globally. We're on a global operating platform now and we have to optimize that.
The second piece is the cultural transformation and driving a new culture. We rolled out a new set of very common-sense values to our organization that are very plain English. We took the time to spell out what each one of them means so people can understand that. We want to be a values-driven organization, not a rules-based organization. The third component is to become a proven executer. When we say we're going to do something, we execute against that.
That doesn't mean that we're going to have success, but it means that we pick a path, execute against it and measure. If it didn't work out the way we thought, “That's okay. That's a learning cycle. Let's go back. What did we get wrong in our hypothesis? We must have had something wrong.” We go back, re-evaluate and learn through that. It starts on those three pillars. We know that we will not be able to achieve our vision organically. It would take too long, but you've got to have those foundational pieces as you're driving organic growth so that you can tap on the M&A. You've got to earn the right to spend the money. There are a lot of moving pieces, but it's a fairly simple plan on what we're trying to do.
SI Group is a privately held PE-backed. Does it make it easier or harder to drive that transformation? Does it put a different focus on you?
Yes, being a private company, they certainly make it easier. We're in a unique situation at SI where we've combined a 100-year old family company that was connected internationally with a privately held SK-backed company called Addivant. SK Capital is a unique private equity firm in the sense that they only do special chemicals and ingredients. They're good at owning companies. They’re mentors, coaches and sounding boards but what they're interested in building is capability as a market leader. That's the focus. That provides us good alignment between what we're trying to accomplish and what they're looking to support and accomplish. I've been in other situations where that was not necessarily the goal of the PE firm or the other ownership structure. For us, this is the best structure. Companies tend to find the right ownership structure as they work themselves through time and evolve. Privately held is good. The fact that it's SK Capital is very positive for the members of our organization.
Your asset in Freeport was significantly impacted by the freeze winter storm Uri. Can you talk a little bit more about that in terms of what the impact is on your business? How are you guys looking at this going forward? I talked to somebody who said one of the things they're grappling with is book their asset, but then their customers who use some of their products in the US Gulf Coast are also struggling to get up and running. I'm particularly thinking about some of the polymers players, people in the petrochemical value chain and others. They said, "We're trying to figure out what we do with potentially 10% of our sales for the year gone because people are shut down for 4 to 6 weeks." How are you grappling with that?
Carefully and in a mad rush. First and foremost, the focus was safety. The challenge that all of us ran into is the severity of the storm and the impact on utilities. It caused everybody to have to shut down in a non-controlled manner, in an unplanned manner. That has all kinds of consequences for restart, which is challenging everybody's restart timelines and capabilities. Safety was first and foremost for us and our partners. That's the second thing. When you think about this partnership, it's a community down there on the Gulf Coast. We are not only integrated with many of our customers, but we have a unique value proposition where we're integrated at multiple points in the value chain with our own chemistries, from our intermediate all the way down through our additives.
We are thinking through with our customers at the various points of the value chain, "How do we support one another?" We're sharing stores, contractors, spare parts, best practices and communications. For the first few days, you couldn't get a cell signal. We were shipping in satellite phones to make sure that everything was safe and going okay. We're slowly and methodically working ourselves back. As you mentioned, we're in a similar position as others. We are actively looking to figure out alternative ways so that everybody's plans become ready for a startup and we can support them in as good a way as possible. We have had to declare force majeure as many others have, but that hasn't stopped us from keeping our employees and customers first and trying to think of creative ways to keep people moving along.
Companies tend to find the right ownership structure as they work themselves through time and evolve.
It's interesting what you said about losing the business. I have a different point of view where there's a certain amount of business that will be lost but that's maybe 10% or 15% of this time of shutdown. The rest of it is just going to be delayed and will come roaring back and should be sorted out through the June-July 2021 time frame. It's what we're thinking. The market demand heading into this has been extraordinary. I don't see that slowing down as vaccination rates pick up around the world or as the positive test rates are declining around the world. It was an interesting update from the president on the progress we're making and the goal he's setting out. It's good progress from the last administration. There's definitely momentum going. It's going to take us a little while to get through this bubble and to get things back to a normal course.
I share that point of view to a large degree so there'll be some price recovery. Frankly, if you look at where some of the prices are now, they've moved up tremendously just because of lack of supply. With the latent demand, people should be able to catch up if they can ensure that their assets are running well, their people are okay and in the right places, and being able to recover and accomplish that. One of my hypotheses on some of the challenges and looking at what happened with this winter freeze in the US Gulf Coast is unanticipated to this order of magnitude. As you said, the shutdowns were rapid. They were not planned in sequence the way that people would want them to be.
I talked to people in other parts of the value chain who are concerned about their supply. When I look at what goes on in the chemical industry, people have had a keen focus on lean supply chains. Is that still the answer? When we look at what happened in 2020, China was shutting down early in the year in January and February. The port was shut down and it's making it difficult to get supplies. Fast-forward through the year with COVID-related challenges and decisions that were made. We got to year-end. A lot of companies, particularly the publicly held companies chose to reduce some of their inventory and working capital to make their books look good for year-end. Six weeks later, before people had a chance to restock, we were slammed with a weather-related incident that was unplanned. Are you guys thinking about this in terms of what's the right supply strategy? Does it need to be more robust? Is being lean the right answer?
It's a good point. The legacy value proposition of SI Group for our customers as well as our own internal supply dynamic was to have production of all our chemistries in multiple regions around the world. We have multiple redundant points of production. We also had redundant points of supply so that we could weather those types of inefficiencies in the market, global supply disruptions or demand spikes in various places in the world. It's been a competitive advantage for our platform for many years. There's a lot of debate that we're having internally and that we have with other people in the industry. Is COVID going to change the willingness to rely on a truly global supply chain or will people start to de-risk their exposure a little bit more?
I'm in the camp of people who will start to de-risk their exposure and rely a bit more on local supply. I don't think that's going to bring a huge price premium but I do think it will provide some premium. The pendulum is not going to swing all the way back to local supply but it probably will go a little bit. Yet it's something that we are constantly looking at both on the supply into our system, as well as the demand with our customers because we do have many decades-long relationships with some of the key global customers that we support around.
You've addressed this topic of supply chain and potential reduction of some of the globalization. That's certainly one of the themes that we're hearing throughout the year. One of the things that we're seeing is digitization. It sounds like you guys have implemented an SAP protocol and program to fund your back-end and business systems. Where else do you guys participate in digitization? We see that this is a big trend. I think the chemical industry has typically been maybe a step or two behind. Frankly, most big major B2B companies are a step or two behind the consumer B2C companies. Is this a priority for you? Are you driving digitization across your business in any way?
The priority for us was first the global operating platform. We've also implemented Salesforce’s Lightning. It’s a global CRM that we use to drive our commercial business. From that standpoint, the connectivity, real-time sharing of information, and the ability to drive enterprise priorities based on that information and market feedback are critical. When we start thinking about digitization towards the customer, we're still behind and there's work to do there. There's a number of different companies and groups coming together to examine that customer experience. It's one thing from a customer experience standpoint to give them access to their invoices, the SDS, and the various data that they would like.
We're definitely headed down that path and making good progress. There's an outstanding question in the B2B world about, "How much return is there and truly in the digital marketplace, particularly in chemicals with the safety protocols and guidelines that are necessary not just for the consumer but for our own people and those involved in the value chain?" There's an open question mark there. It's something we actively explore amongst the SK Capital companies. We have a monthly call to talk about this. There are certain companies that are farther ahead than others, but we participate and have been learning about that with everybody else.
Return on investment has always been a big topic. I worked in digitization back when we call it eCommerce and eBusiness. Through the years when I was at Shell in particular, it's hard to make a business case. Are you gaining new customers as a result of that? Not necessarily because of the way customers are vetted. The process is and the relationships.
If I go back to my distribution days, we were having conversations with a couple of our key supplier partners about how do we make it a seamless experience for the end-customer so they go to a selection tool and want to look at the following product. Would they gather that information if you could in the background take the complexity away from order fulfillment from them so they say, “I'm interested in a sample and ordering the product?" They had no idea where they were hosted. The fulfillment would get routed through an algorithm. Are they tank-wagon customers? There are efficiencies in that linkage. On the supplier side of things, I'm having that conversation with distributors about, "I think there's an opportunity here," but then you start getting into, "Our Salesforce platforms have to be seamless to one another." How do you do that in a way th