How are leading companies getting pricing done? I interviewed Robert Smith, director of corporate pricing at Eastman Chemical Company, to hear this leader's perspective on organizing pricing to perform: What kind of challenges should the pricing function address? Who should be engaged in pricing? And what kind of tools and techniques can be used to make the pricing function more effective and efficient?

In 2013, Eastman operating earnings hit a healthy $1.59 billion on $9.35 billion in revenue. From headquarters in Kingsport, Tennessee, Eastman operates in North America, Europe, Asia Pacific, Latin America, Middle East, and Africa with over 50 percent of revenue from international operations. Eastman has five business segments serving more than 11 diversified markets such as transportation, building and construction, and consumables. It offers a broad spectrum of products ranging from highly engineered new-to-the-world products and services to relatively commoditized products.

That is, from a pricing perspective, Eastman is big and complex: complexity in product mix, market segments, geographies, and customer base.

Robert Smith has been successfully managing this challenge at Eastman as director, corporate pricing, since 2009 and, along with members of his team, is a regular attender at the Professional Pricing Society's conferences and workshops, and his team members are regular attendees of the Wiglaf Pricing Webinars.

What follows is an edited interview transcription from 2014.

Pricing Organizational Design

• TS: How is the work of pricing organized?
• RS: There are three communities of pricing people.
• We have, first of all, a Pricing Council at Eastman which I lead. [It] is comprised of people from each business, and representatives from each of the key functional organizations that support pricing at Eastman: IT, Finance, HR, Supply Chain, others like the Legal Department. … [The Pricing Council] has been used to drive improvement projects across the company, to coordinate pricing actions across businesses, but mainly to drive pricing improvement efforts, for example, significant IT efforts like the implementation of Vendavo at Eastman.
• The second community of pricing people at Eastman would be individuals I would call pricing or product managers. Those individuals sit in each of the business sectors. They are people who are probably the primary drivers responsible for short-term profit and loss in the business. They are usually the final decision makers and approvers on pricing decisions. They report into business management for those P&L sectors.
• Lastly would be the Corporate Pricing Organization, which has about 80 people globally [which Robert Smith directs]. Corporate Pricing is a division within Eastman. It is part of the marketing organization. We have an organization called Marketing, Sales, and Pricing that has an officer-level person over it. So we have functional marketing, sales excellence, and pricing people that sit there.
• TS: What functions does Corporate Pricing address?
• RS: Pricing analysts support the pricing managers in the businesses by evaluating impact and, in some cases, making decisions on competitive price requests that come from field sales.
• The management of sales contracts and rebates fits within our team so for any business that has sales contracts or rebates, we help develop and administer them.
• Process services for pricing … are supporting the existing pricing process infrastructure for the company. So they are the go-to people when there are issues with things like SAP, Vendavo, or SciQuests's Contract Director, which is our contract management system.
• There is also a group that is staffed with individuals who are charged to go out and assist the businesses with pricing projects, so that is getting into the strategic side. We have many businesses that will come to us and say they have a pricing problem and need help with it. Maybe it is a pricing strategy problem that they need consulting support on, maybe it is something more tactical or mundane than that. We have a small cadre of MBAs in that team, and their job is to assist the businesses with those pricing initiatives that they want help with. Because the businesses will often say I know I have a problem, and I want someone to help me fix it because I am busy running the business and I don't have time to fix it by myself. That's when those people come to … help address those issues.
• Then, lastly, we have a small team of analytics professionals that are working on making it easier for our pricing managers to get insights on their business that would help them improve their profitability.

Pricing Mission

• TS: What is Eastman's mission and vision for pricing?
• RS: Eastman is doing four things.
• We are building competence in pricing across the company through training, coaching, and development because we want to become world class in terms of our pricing capability, and due to transitions of people from one job to another we are perpetually training new people to be effective in pricing roles at Eastman.
• We are reducing complexity in our pricing systems because pricing is a complex business and [while] that price complexity can work in our favor, we are trying to not afflict our sales partners and other partners with having to deal with all that complexity. That's our job to deal with that.
• We are thirdly working on globalizing our capabilities. Today we are a global company that needs robust systems and capabilities that work for all regions not just for the United States.
• And then the last element of our mission, the fourth part, would be enhancing profitability and competitiveness. We believe that we can help our businesses be more profitable because of insights that we can find in looking at their pricing data. We believe we can help them be more effective in developing and implementing pricing strategies across the company.
• TS: What in Eastman are the key strategic and tactical areas that pricing is supporting?
• RS: There certainly is a component of our work that needs to be focused on making sure every business has developed and clearly articulated pricing strategies. Another aspect of strategy for us would be making sure that we are looking ahead so that the underpinning systems, processes, and capabilities that we have in pricing not only meet the needs of the organization today but can meet those needs in the future.
• But clearly there is a significant operational aspect to pricing, too, in terms of lots of negotiated pricing in the chemicals landscape, being able to process those competitive price situations quickly and accurately so that we can be responsive in the marketplace as we need to.
• We love data here so we want to do that with the appropriate analytics to make sure that we are making the best decisions possible in a world of incomplete information.
• TS: What's next for pricing at Eastman?
• One of the reasons Corporate Pricing was formed was that our previous CEO, Jim Rogers, wanted to accelerate the pace of change in pricing improvement. He helped us establish the Pricing Council. When it became apparent that Jim was going to become the CEO, he said he liked what's been done on the Pricing Council but he wanted to accelerate the pace. I think we have done some good work, but I would like to see us move faster, penetrate even more of the organization with best practice implementation.
• We talk about best practices: “Here's what Business A did. Business B, Business C—would you like to do that? But it's up to you.” I would say in today's matrix culture at Eastman it is still up to those businesses, but the formation of Corporate Pricing has helped put a little more pressure on the equation and helped us within the Pricing Council to get better visibility across the whole company on opportunities. Once we see them, we can then come back to the Pricing Council from the perspective of Corporate Pricing to say, “Hey, you may not have realized this but three of the five businesses out there have the same concern. We are hearing about it individually, and now we want to propose a corporate solution to that. Are you willing to support us?”
• The development of the centralized consulting organization has also helped us do that more effectively. What it has caused us to do, though, is transition the nature of one of the groups that we have, that pricing process services group, and take it from being purely a support organization and building more strategic capability in it. We feel it's more valuable to the company if we can staff it with people who can work on a pricing strategy problem or on more value-based pricing work. They may be able to implement a capability like LeveragePoint in a business to help underpin the economic value estimations that they have been building for the past several years instead of using Excel spreadsheets, which may get out of date quickly.

Pricing Functional Architecture

• TS: Lastly, where do you think pricing should sit? Sales, Marketing, Finance?
• RS: I am not sure it matters whether it ought to fit under any one of those three…. Some of that, to me, depends on what are the measuring sticks and what are the objectives of the enterprise. If you have those set right, it probably doesn't matter where it fits.