In 2007 and 2008, Mr. Babe began cutting costs. He eliminated 15% of the segment's workforce, mostly back office positions like accounting, planning and order processing. "It seemed counterintuitive because we were coming off of some of the best years we ever had," says Mr. Babe.
Then, the recession hit, and sales deteriorated. Revenue in material sciences declined 27% to € 1.5 billion in North America and 23% globally.
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Mr. Babe cut more costs. But because he had made cuts earlier in the two years prior, he had the flexibility to invest in other areas of the business at the same time.
He reduced travel budgets, implemented a pay freeze and reduced spending on consulting and training. He analyzed manufacturing operations, closing one plant in Connecticut and shutting some operations at others. Overall, he reduced manufacturing capacity by 40% in 2009, saving on raw material, labor and electricity costs.
At the same time, Bayer ramped up spending on research and development. "Our plan was very focused on innovation," says Mr. Babe. In 2009, Bayer North America spent €507 million on R&D, up from €459 the prior year. The company as a whole had a record R&D spend of €2.8 billion in 2009 and has budgeted 5% more for 2010. Mr. Babe shifted his hiring priorities as well, focusing on engineers and scientists rather than back office jobs.
Also in 2009, Mr. Babe created a team of four people to identify business opportunities related to climate change legislation, environmentally-friendly construction and alternative energy. The material sciences business creates products used in solar applications, wind turbines, fuel-efficient cars and insulation, and Mr. Babe considered them ripe for growth.
The cost cutting and refocusing paid off. The unit rebounded in the first quarter, with sales in North America rising 16.6% to €436 million."
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