In the past, chemicals companies have relied on spin-offs, mergers and acquisitions and, when possible, product innovation to deal with big challenges. That was fitting for the challenges of recent years, which primarily have been the commoditisation of products or competition from lower-cost players in emerging nations. But today’s greatest challenge is an economic and geopolitical business environment that is out of the normal range and defies normal responses. This environment combines thorny elements that much of the industry has not had to deal with before: trade wars, perplexing regulatory policies, demand shifts in huge markets like China, the weakening of the European Union, increasing risks to global supply chains and the accelerating impact of digitisation. All of this is forcing chemicals companies to reconsider their approaches to growth obstacles and how they formulate strategy for the short and long term — not knowing from which direction and when the next challenge will arise.
Perhaps the most important thing chemicals companies can do in this environment is a bit contrarian: rather than reacting to today’s shifting conditions, think more broadly and more long term.
Perhaps the most important thing chemicals companies can do in this environment is a bit contrarian: rather than reacting to today’s shifting conditions, think more broadly and more long term. Simply put, take a ‘true north’ approach to strategy development. Start with a clean slate and imagine how customer needs and the value of products that serve these needs will change in the coming years. Understand the driving forces behind these changes, and most important, answer the question of what factors will remain relevant in any future scenario. Then, critically reflect on what few critical capabilities will be necessary for success and be honest about the gaps. Only then can the company start the transformation journey of, for example, establishing new business models, developing products and services, restructuring business units, and building talent pools and innovation teams to target these new potential revenue streams.
For instance, agrochemicals should focus on secure and sustainable food supplies and a new type of farmer persona; infrastructure materials on smart cities; and packaging on zero-carbon footprint protection. In other words, determine what you want your company’s identity to be when the volatility becomes less imposing and even transforms into an opportunity. This approach affords chemicals companies the chance to revisit their operating models with the benefit of imagination. By visualising the organisation in a market with different contours and requirements than today’s, the company examines its ability to operate in that unfamiliar landscape. Its capability shortcomings are highlighted and the coherence of its product portfolio is revealed. In turn, the skills, behaviours and processes supporting legacy assets that may be valuable down the road as the market shifts can be nurtured.
From this process, likely outcomes for chemicals companies include: