Chemical companies are usually considered quite conservative. But according to McKinsey and Company research, the chemical sector is among the highest-performing industries. Total return to shareholders for chemicals is nearly double that of the world equity market, and the CAGR for the period from June 2008 to March 2015 for the chemical industry runs about 9 percent, compared to 6 percent for all markets. Clearly the industry has been doing something right.
By executing on capital investments that enabled access to abundant low-cost feedstock, commodity chemical firms have been able to control costs in a corner of the market that typically struggles for margins. They also placed an emphasis on operational efficiency and streamlining business processes.
Working closely with customers to ensure alignment in objectives and supply chains has provided insight into future requirements for specialty chemical manufacturers, who focused on developing and leveraging intellectual property. This strategy allowed them to innovate and quickly introduce new highly differentiated products that serviced needs customers may not have even yet been aware of.
The customer focus of specialty chemical companies, and the operational excellence strategy of commodity chemical companies, have both required skillful use of technology and intellectual property to achieve superior returns for investors. However, the question remains whether these strategies will be sustainable without an additional component.
Both specialty and commondity chemical companies will need to continually transform their businesses to achieve the same rates of growth and profitability in the future. New digital business models are the key to ensuring continued growth.
Some companies have already begun their digital transformation, which will enable them to transition to new, reimagined business models. Some companies are testing the move from a business model, based on delivering products, to a new model, based on delivering outcomes. Others are looking at a consolidated supply chain ecosystem that functions as a single entity competing on overall efficiency and service. By pooling R&D, production, or logistics resources, these companies are able to outmaneuver the competition and provide better service to customers.
The digital transformation is giving rise to reimagined business models that turn established notions of the “right” way to run a company into vibrant new models that compete and win on entirely new criteria.
In order to participate in the digital transformation of the chemicals industry, companies must find ways to share information across company boundaries without complex and time-consuming integrations, and to analyze large volumes of data in real time to provide insight into decisions and strategies. Having the right IT foundation in place is the most critical building block of digital transformation and reimagined business models.
Stefan Guertzgen is the Global Director for Industry Solution Marketing Chemicals at SAP.