Teaching Note

Archer Daniels Midland Company1

Case Overview
Archer Daniels Midland (ADM) is an upstream manufacturer of bio-based raw materials.
In light of the recent shift to green chemistry, the company has been working to
establish itself as a leader in the green chemistry movement. It was recently awarded
two Presidential Green Chemistry Challenge Awards, including one for the Archer RCTM
reactive coalescent, which significantly reduces volatile organic compounds (VOCs) in
paint and coating products.

At the moment, ADM faces two primary questions: how it can fully commercialize its
innovative Archer RC reactive coalescent in a very fragmented paint and coatings
industry; and how to leverage its internal competencies and strategically respond to
opportunities in the green chemistry field, both within the paint and coatings industry
and beyond. Having demonstrated leadership in VOC reduction, ADM is exploring other
initiatives that would continue this environmental performance.

The case leaves students to struggle with diagnosing ADM’s internal and external
environments along with how the company should strategically position itself in the
marketplace in the future.

Teaching Objectives/Purpose
This case can be used for different sections of a strategic management and/or
marketing class while playing a rather central role in a business sustainability class.
From a strategic management point of view, this case would be especially useful in

1
Unless otherwise noted, case data are based on interviews and review of company documents. All
people and events are real.
This case was prepared by Michael Valente at the Schulich School of Business at York University. It is intended to
serve as a basis for class discussion rather than to illustrate the effective or ineffective handling of an administrative
situation. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or
transmitted in any form by any means without permission by the ACS Green Chemistry Institute®. These materials
were developed through a cooperative effort of the American Chemical Society’s Green Chemistry Institute and the
U.S. Environmental Protection Agency (EPA) Office of Pollution Prevention and Toxics’ Design for the Environment
Program. Partial funding was provided by the EPA through Cooperative Agreement #X8-83077701-0. Any opinions,
findings, and conclusions or recommendations expressed in this publication are those of the authors and do not
necessarily reflect the views of the EPA. Any mention of trade names does not imply endorsement by the EPA.

© 2009 American Chemical Society

assessing a firm’s external and internal environment for the purpose of strategy
formulation. Students should assess the sources of ADM’s current success by
identifying the firm’s internal competencies while understanding how it has successfully
positioned itself in the external environment. With this knowledge in hand, students
should collectively come up with some interesting propositions for future strategies,
diversified or not.

From a business sustainability point of view, this case demonstrates some of the
rewards associated with this business approach while highlighting internal capabilities
required for its execution and external signals exhibiting potential positioning
opportunities. Finally, marketing classes could use this case to examine the marketing
opportunities associated with a sustainability agenda along with some of the business-
to-business challenges associated with the paint and coatings industry and, more
generally, manufacturing partnerships.

Discussion Questions
1. Describe the industry in which ADM competes. What are the industry’s defining
characteristics? What is the industry’s competitive structure? What other
external factors should ADM consider?

At a high level, ADM operates in the chemical industry. It competes in a range of

industries at the most upstream parts of the supply chain. Because it manufactures bio-
based materials, the company has a broad spectrum of manufacturers that could act as
customers. Rather than classifying ADM as a company in a particular sector, such as
rubber or renewable resources, it is better classified as a bio-based manufacturer that
services multiple and diverse sectors.

Whereas the chemical industry is generally considered mature, the green chemical
industry is growing. Many opportunities still exist to supplement existing industrial
products with green chemistry techniques. Given that many chemicals are produced
using a non-renewable feedstock, bio-based feedstocks are in great demand. ADM has
the potential to compete in this area, given that it uses bio-based, renewable feedstocks
such as corn and soybeans. The political, social, and ecological dimensions are
especially relevant in this case (pages 5–6).

ADM essentially acts as the intermediary between farmers and large manufacturing
companies that require bio-based materials for the production of their goods and
services. Consequently, ADM’s customer market is quite fragmented, and ADM must
understand a large range of industries in which its customers operate.

Porter’s 5 Forces

Buyer Power—Given ADM’s history and size and the dearth of competitors in the bio-
based materials industry, buyer power is quite low. Many customers consider ADM’s

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longevity and expertise as substantial benefits. Because ADM is so diversified in its
product offerings, many customers have looked to ADM as somewhat of a one-stop
shop, which increases customer retention.

Supplier Power—Supplier power would be quite low. Although farmers have a few
companies through which to sell their crops, they are somewhat limited in their choices
because of the locations of ADM’s distribution systems, which create substantial
switching costs.

Threat of Substitutes—This threat is low to moderate as customers feel pressure to

adopt sustainable practices, such as using bio-based materials. Having said that,
substitutes in the paint and coatings industry appear to be emerging regularly implying
that while these policies are helping to build a customer base, it is also encouraging
similar initiatives from competitors through the creation of alternative product
applications (see page 13 of case study).

Threat of Entry—This threat is quite low, as entrants would need to build a large
network of farmers to get a business like this going. Many firms already engaged in bio-
based manufacturing could enter particular downstream markets that ADM is already in,
however, demonstrating low mobility barriers. So while the threat of new entrants is low,
the threat of mobility barriers is quite high. Most students will not get this but it is an
important point.

Competitive Rivalry—This case doesn’t provide much information on competitors, who

exist with little rivalry in different regions around the world.

Overall, the Porter’s 5 Forces analysis should provide students with an indication that
ADM operates in a lucrative industry at the moment. Complementing this analysis with a
PESTE analysis might also shed light on the fact that trends (political, economic, social,
technological, and ecological) more generally support the green chemistry movement
and, thus, the use of bio-based raw materials.

The external analysis detailed above warns of a challenge for ADM. Because the paint
and coatings industry is quite fragmented, ADM struggles to employ a standard
compound for all paint manufacturers. In addition, ADM has little control over how its
bio-based materials are used, and the company’s sales are entirely dependent on what
its customers downstream in the supply chain choose to make. Furthermore, ADM has
not nurtured relationships with these customers, so it has little information about its
customer’s products or future business goals.

2. How successful has the company been to date? Support with data. What
factors account for ADM’s success?

A quick ratio analysis of ADM’s income statement indicates that its cost of goods sold
(COGS) as a percentage of sales is declining. ADM’s net income margin is quite low,
though it has increased from 2.1 percent in 2003 and 2.0 percent in 2004 to 4.2 percent

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in 2005 (all figures using before tax income) 2 . Selling, general, and administrative
expenses dropped substantially. The imbalance of expenses versus COGS confirms
that ADM focuses on the upstream farmer, not on the downstream customer, in terms of
marketing, sales force development, and brand building. ADM would need to
substantially reduce its cost of goods sold if the company attempts to improve its
relationships with downstream customers.

From a balance sheet perspective, the company’s liquidity is sound (ratios equal 1.53
for 2004 and 1.81 for 2005) 3 . The debt-to-equity ratios are just above 1, which is a good
sign. A substantial amount of money is tied up in receivables and inventory, which may
be a cause for concern. Generally speaking, ADM’s financials are in good shape.

3. What are ADM’s strengths and weaknesses? What competencies and

capabilities does the company have that its rivals lack?

A major part of ADM’s business is to separate oils and feedstock into components; the
company also considers how these components can be used to add value to its
customers’ products. ADM’s strengths include its history and established relationship
with farmers. Its core competencies lie with its separation, purification, and conversion
capabilities. Consequently, ADM can process and separate different agricultural
materials at a large scale, which provides the company with substantial cost efficiencies
that are inimitable among competitors. Moreover, ADM can adapt these capabilities to
produce many different materials used in a range of customer products.

ADM also has a substantive presence on many shelves in grocery stores as bio-based
ingredients are typically found in many products. It is also an expert at acquisitions and
partnerships, as it has engaged in numerous integration initiatives in the last 50 years.
This indicates that ADM has a unique ability associated with acquisitions. ADM also has
some experiential capacity associated with bio-based raw materials and technologies
that would supplement petroleum (i.e., ethanol and biodiesel). This, of course, requires
ADM to leverage its current purification, separation, and conversion capabilities.

ADM recently introduced a wave of new industrial products that puts it head-to-head
with some of the chemical industry’s biggest players. Interestingly, ADM makes these
products from bio-based materials, such as corn, soybeans, and other crops, rather
than from petroleum-derived feedstock. Similar to how companies in the petroleum
industry are back-integrated into the supply of crude oil, ADM is back-integrated into the
bio-derived feedstocks that are available today in large quantities. Consequently, being
a large commodity supplier puts ADM in a very good position to source raw materials for
new chemicals, especially those chemicals that need to possess renewable ingredients.

2
ADM 2005 Annual Report. http://www.adm.com/en-US/investors/Documents/2005-ADM-Annual-Report-
Eng.pdf (accessed March 9, 2009).
3
Ibid.

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ADM’s technological capacity, derived from the creation of Archer RC, is quite unique
and difficult to imitate. ADM’s reputation is strengthened by its two Presidential Green
Chemistry Challenge Awards, but competitors are introducing alternatives to Archer RC.

ADM’s weakness lies in its downstream relationship with customers. Because it has
thousands of customers, the company finds it difficult to establish solid, long-term
relationships. ADM doesn’t have a large sales force, and it relies on its Web site to
convey information. The company uses large distributors for small volume sales, and
sells direct to large customers. This sales arrangement could represent a threat to ADM
down the road if competition intensifies. If ADM is not aware of how the green chemistry
movement is influencing its customers, the company cannot adapt. This weakness is
manifested in ADM’s inability to fit its product ingredients with manufacturers’ paint
formulations or recipes.

Consequently, ADM is weakened by the fragmented paint and coatings industry’s need
for customizing the use of Archer RC. This implies that the ingredient’s benefits may be
nullified if the paint manufacturers do not use the proper amounts.

4. What is ADM’s organizational paradigm? What does the company stand for?
Describe ADM’s culture.

In 2001, ADM announced a new corporate logo, tagline, and advertising campaign
designed to underscore the company’s deep commitment to nature and global
agriculture.

The case provides a brief description of the culture. ADM certainly encourages
innovation and cooperation. Implicit in the case is ADM’s general commitment to bio-
based sources of manufacturing, which is very much in line with a sustainable/green
chemistry movement.

Students should get from the case that the company is focused on supplementing
existing, non-sustainable feedstocks with renewable ones.

5. How should ADM position itself in the paint and coatings industry? In the
industrial products industry? What internal capabilities should it leverage in this
positioning strategy?

Rather than recommending a strategy, the instructor should allow the class to discuss
this topic. This case describes a number of diversification opportunities related to the
paint and coatings industry that ADM might find lucrative. Through their analysis of the
external environment, students should position the company in a context that leverages
its internal capabilities in an emerging market.

Some students might want to leverage ADM’s innovative and collegial culture in
combination with its separation, purification, and conversion technologies. Students

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should find ways to take advantage of the emerging green chemistry market and other
initiatives associated with sustainable development (i.e., renewable energies).

Students will most likely discuss the opportunities associated with bio-based raw
materials and technologies that would supplement petroleum. This would clearly draw
upon ADM’s capabilities and, with oil prices showing little sign of dropping, this might
indeed be a lucrative endeavor. That being said, the company would need to find
creative ways to make these affordable in the short term so that it can reinvest some
income into the technology for long-term petroleum replacement. The case talked about
biodiesel as one option, not as a fuel supplement, but as engine lubricant.

6. If you were asked by ADM’s CEO to recommend specific strategies for the next
five years, what strategic options would you consider and what options would
you recommend? Why?

The instructor should list a number of alternative strategies that the company could
pursue given the information in the case. Asking the students to come up with some
criteria to evaluate these alternatives will reveal the key success factors for the
company and, more generally, the industry. Standard criteria for a strategic
management class should include whether or not it would be leveraging existing
capabilities, whether or not the external environment is accepting of this approach, and
whether or not the strategy is aligned with the organization’s paradigm (which would
have all been discussed above). These should be supplemented with case-specific
criteria, such as dealing with the fragmented nature of the paint and coatings industry,
tapping into the conversion capabilities, etc. With these criteria in mind, the instructor
might want to ask students to discuss the best alternative or combination of alternatives
in small groups.

Clearly, ADM’s value proposition is really the use of bio-based materials as a

supplement for petroleum-derived feedstock as ingredients in the creation of industrial
products. ADM’s dominance in this market is critical, as the market for sustainable
products continues to expand.

With the push of renewable fuel sources and ingredients for industrial products, ADM
might consider the potential associated with leading the bio-based and renewable
market. As probed in the next question, students should be aware of the product
implementation implications associated with this strategy.

Applying the technologies gained from the Archer RC product to other applications does
indeed leverage ADM’s internal capabilities. The company must stay abreast of the
signals from the external environment, however, in terms of what is valued or going to
be valued. Leveraging this technology for applications for which the market is not ready
is a common downfall that must be avoided.

Although ADM is an expert at acquisitions, these typically involved upstream raw

material opportunities, not downstream manufacturers closer to the end-consumer, or

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even sales and marketing firms. ADM could transfer this internal competency to this
downstream gap. Given the upcoming changes associated with green chemistry, these
downstream partnerships or acquisitions might be something to consider.

7. How do you suggest ADM implement these recommendations?

The implementation plan is entirely dependent on the recommendations. A couple of

important points should be considered, however. ADM would need to be aware of the
massive investment required to move downstream in terms of customer relationship
development. ADM may need to acquire a sales force or company that specializes in
these functions. To stay abreast of the changes in the green chemistry movement, ADM
must develop closer relationships with product manufacturers who are aware of shifting
market demands. Proactivity is key here. So although ADM possesses the
competencies upstream, it needs to invest in closer relationships downstream.

Whatever the recommendations, students should review the implications for structure,
reward systems, processes, culture, capability development, etc. Because this is
discussed near the end of the class, students should be left with the somewhat daunting
task of implementing recommended strategies.

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