Chemical suppliers make the case for digital investment
Finding the right digital strategy
With the help of digital technology, chemical suppliers will create more sustainable products with lower environmental impact. The chemical industry is likely to play a central role in improving urban efficiency, meeting the growing global demand for energy and food, and developing new technologies critical to the next generation of consumer goods and transportation products. But can chemical suppliers do more?
Whether as a catalyst for subversion or a potential source of future revenue, a reasonably designed and deployed digital strategy may be one of the biggest opportunities in the history of the chemical industry, especially driven by a clear business strategy. Finding the right strategy is the key, especially considering the new business model that digital technology will bring to the industry. The diversity of available options means that adopting an agile culture is the most effective way to find the right strategy.
Key questions leaders should ask
The adoption of digital technology may create a stronger relationship between chemical suppliers, customers and end markets. However, this does not eliminate the particularities of a particular chemical company, which depends on its business configuration, proximity to the end market, capability and external impact.
The key question for the managers of chemical suppliers is whether their positioning and configuration have reached the best state to make full use of digital opportunities and how far they can go to take advantage of the adjacent emerging ecosystem. There are many other questions we need to ask when deciding where to play and how to win, including:
In the value chain and ecosystem, what areas do digital products allow chemical enterprises to participate in?
How will digital programs change existing customer relationships and help build new ones?
Where can digital capabilities strengthen and expand the company's value proposition to customers?
What key technologies, products and profit models will increase the differentiation advantage of enterprises?
What new capabilities (data science, marketing, consumer awareness / engagement, multidisciplinary science, etc.) are needed to support sustainable value creation?
Justify digital investment
Historically, the chemical industry has improved its performance by investing and acquiring assets with growth opportunities. The problem is how to use this advantage to create value. Traditionally, the solution has been to either add new capacity, acquire new companies, or drive innovation. But each country has its own challenges.
Mergers and acquisitions (M & A) have limitations. In the past few years, there have been a lot of M & A activities, which have pushed up the valuation of chemical enterprises. As a result, it is sometimes difficult for chemical suppliers to find acquisition targets that meet their investment portfolio and growth aspirations, and the valuation is reasonable. In addition, large and complex M & A transactions usually require a lot of management time and energy to correctly integrate the acquisition and realize the value of the transaction. It can be considered that this kind of management time and energy may be better focused on other organic initiatives to increase shareholder value.
How to invest in more research and development (R & D)? Although R & D provides intrinsic long-term value, there is competition between R & D investment and short-term operation investment needed to survive in uncertain period. The gap between short-term and long-term value generation can be bridged by better combining R & D with other functions, so as to improve efficiency and effectiveness.
But the digital initiative has brought significant opportunities to chemical manufacturers from all walks of life. On a small scale, digital technology has always been a unique catalyst for value creation. Some companies are starting to make large-scale digital investments in response to changing environmental regulations, the rapid introduction of new technologies, and changes in consumer preferences and needs. These opportunities are changing the competitive base of the chemical industry and creating new market segments that are strategically different from traditional chemical production and marketing models.
