Chemicals industry

Translate the strategic into the everyday

This second act requires you to blueprint, build, and scale up the distinctive capabilities that are at the heart of your identity. The process of deliberately building these capabilities requires precision about how these capabilities create value, both individually and as a system. The blueprint that you start with defines why the capability is valuable, how it is different from what you have today, and what is required to make it work (in terms of processes, systems, skills, etc.). It also includes a business case. Leadership throughout the company will then be accountable for building these capabilities and refining them. This will involve bringing together R&D, operations, sales, marketing, procurement, and IT to collectively focus on improving and innovating the way you deliver value to your customers. In some cases, a merger or an acquisition may be an appropriate option for building a capability because the organization does not have the skills, culture, or structure to develop the capability organically.

Consider Switzerland-based Lonza Group. Throughout its long history, the company has focused on, in its own words, “satisfying both fundamental and emerging needs of humans.” In recent decades, that has positioned Lonza as a company whose most critical capabilities combine biotech expertise with chemical know-how. Building on these capabilities, Lonza develops products for a wide range of areas, including disease prevention and treatment, clean water, nutrition, food synthesis, and advanced materials. This provides a broad swath of market sectors to target — as varied as biologics, cosmetics, shampoos, agriculture, and paints. To develop distinctive innovation capabilities that span chemistry and life sciences, and that could consistently create winning products in all these realms, Lonza has invested heavily in developing the skills, practices, and systems that support these capabilities across the organization.

Put your culture to work

Your company’s culture — its informal relationships and ways of thinking and acting — can be an inherently positive force. Coherent companies identify traits and behaviors that exemplify the type of organization they want to be and that are required to excel at their value proposition and capabilities system. They promote these behaviors regularly. They make sure that the traits and behaviors are reinforced in practices and incentives. People within the company who naturally understand the type of behavior that is required are used as “multipliers” to help others do the same thing. Cultivate those leaders within your company, no matter what their level in the hierarchy, because they will be essential to your cultural progress.

For instance, Ineos, a low-cost provider of basic chemicals and polymers, has an entrepreneurial culture in which local sales and operations people may make major decisions on their own to support a lean, localized business model that can turn a profit on discounted products and services. The company identifies staff throughout the organization who feel comfortable in autonomous environments and trains them in decision-making skills as well as the value of local decision making to the organization. These staff members, in turn, spread this knowledge in their regions, helping scale the company’s emphasis on managing independently throughout the organization.

Cut costs to grow stronger

Building distinctive capabilities is an expensive endeavor. But you can free up the required capital by aggressively reducing expenses in noncritical areas. This way you can make sure the majority of your expense budget is invested in differentiating capabilities.

To be sure, reducing cost in noncritical areas is often difficult, especially for companies that have already cut back their expenses and staff in multiple rounds of cost cutting. But when you do it the right way — by redirecting costs from basic capabilities to differentiating capabilities — it is much easier to make the case for change to the organization and gain the hearts and minds of the people involved. In this process, companies need to challenge not only how they do things, but also what they do and where they do it. Nothing should be funded simply because it appeared in last year’s budget. Treat every cost as an investment, as a way to reinforce what truly matters to your company’s identity. Some activities will be distinctive and deserve more investment. Others will be standardized: You need them just to compete in the chemicals industry, but they don’t deserve much in the way of direct resources. And even if you’ve already gone through multiple rounds of cost cutting, consider taking another look, focusing especially on possible additional savings from digitization. Recent technology breakthroughs — many of them still unfolding — can drive new opportunities for process automation that reduce costs, improve quality, and accelerate production.

An apt example of a cost-conscious company is Germany’s Evonik Industries, which aggressively cut spending a few years ago by wringing costs out of inefficient and unprofitable operations. By doing this, Evonik could reinvest in capabilities that were at the heart of its success, such as the development and commercialization of manufacturing processes and product offerings, and working with customers to launch new products and applications. For instance, Evonik used some of its savings to significantly expand its R&D footprint with new innovation centers near its customers. This strategic reallocation of resources enabled Evonik to increase its competitive advantage in its core businesses, such as cosmetic ingredients, additives for food and animal feed, biotechnology, and medical devices.

Shape your future

As you move toward a position as an industry leader, further raise the quality of your capabilities to sustain your momentum. Consider how Monsanto has continually focused on innovation management. The company first developed chemical applications for crop protection, then invested in crop technologies and GMO technology, and now is emphasizing the application of digital solutions to agricultural challenges. This innovation-based transformation journey has helped the company become a front-runner in creating sophisticated systems that provide farmers with solutions addressing their specific needs.

Monsanto relied heavily on acquisitions in order to advance its capabilities. For example, in 2012, Monsanto acquired Precision Planting, which had a capability in software and hardware development and in using analytics for more accurate crop planting. In 2013, it acquired Climate Corporation, a company with data-modeling capabilities used for weather forecasting. In 2014, Monsanto strengthened its data science capabilities with the acquisition of 640 Labs, and reinforced its financial acumen with the purchase of John Deere Financial.